A shareholder meeting is a meeting held by the owners of a corporation to discuss the management of the company or to vote on agreements and the election of board members.
Shareholders are required to participate in person, although new ways have been sought after the health crisis to do so remotely. The board of directors can determine the location if it is not designated by the form based on the company’s bylaws.
Summary
- The shareholder meeting, regardless of the type, is a meeting in which decisions are made that govern the operation of the company.
- The shareholder meeting is held in compliance with the company’s bylaws and the laws in force in the country, having to be governed by the laws that apply to it.
- Shareholders have rights and duties within the meeting according to their participation in the capital stock, the greater the participation, the greater the responsibilities and rights.
What you should know about shareholder meetings
In the commercial sphere, the general shareholder meeting consists of the meeting of the share capital of a company (represented by the shareholders) to make a series of decisions established by law or by the company’s bylaws (1).
The management of a company is carried out through the shareholders’ meetings, where decisions are made about the future, the distribution of dividends, and increases or decreases in the share capital. These are some of the most important questions to understand its operation.
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What is a shareholder meeting?
In companies, there are different corporate events, among which the General Shareholders’ Meeting stands out, which is one of the main governing bodies of a capital company (2). The meeting is made up of the owners of the company (shareholders) and they meet to make decisions about the direction and management of the company.
Corporate topics are discussed in these meetings and are implemented through resolutions. The performance of the company during the legal period is also reviewed, the board of directors is appointed and decisions are made on increasing the capital stock, acquisitions, mergers and more.
Types of shareholder meetings
Not all meetings attend to the same objectives, for this reason shareholders meet at different times during the legal period.
Ordinary general meeting
This is the shareholder meeting held once a year and within the first six months of the legal year and after the end of the previous year, to approve the management carried out by the Board.
It approves the accounts and the Board’s management of the previous year. The ordinary general meeting decides how to manage the balance sheet, the income statement, and its distribution.
Extraordinary general meeting
An extraordinary general meeting is held for various reasons, such as a change of registered office or a change in corporate purposes. It can be called at any time of the year due to the need to increase or reduce the share capital.
The legislator may convene the shareholders in the event of a change in the internal regime of the transfer of participants. The meeting may be convened at any time provided that it is properly notified.
Universal meeting
This is a meeting at which all shareholders meet voluntarily without prior notice and unanimously accept the agenda. 100% of the partners, including even those who do not have voting rights, are constituted in a company meeting.
The meeting is held by default at the registered office of the company, unless another place is specified in the notice of meeting.
In this meeting, any type of topic can be dealt with, but they do not necessarily have to be unanimously approved. The certification issued must state that it is a universal meeting, all partners must sign the minutes and the place of the meeting must be indicated.
Shareholder class meeting
This meeting is aimed at specific groups of shareholders to discuss issues that only concern or affect them. For example, shareholders who own fewer shares or holdings may meet to discuss bylaws that affect them.
Such meetings are required when the company wants to pass a new resolution that affects only specific shareholders.
Check out our article on: Meeting Criteria
How agreements are approved in a shareholders’ meeting
Once the items on the agenda have been discussed, voting takes place to approve resolutions by majority vote. Corporate resolutions are adopted by an ordinary majority of the votes of the shareholders present or represented (3). Depending on the type of resolution to be voted on, there will be different types of majority that will approve them.
- The ordinary majority approves the annual accounts, this majority is composed of the votes of those attending the meeting and will need 33% in the vote to approve the resolutions.
- The reinforced or qualified majority, whose shares total more than 50% of the capital stock, is in charge of approving increases or reductions of capital stock, as well as the modification of the bylaws. In certain agreements, such as mergers or divisions, the approval of shareholders holding more than 66% is required. These majorities also decide on the preferential rights of partners to purchase shares, capital increases, powers of attorney, exclusion of other partners, etc.
Who convenes the shareholder meeting?
The directors must convene the general meeting when requested by one or more shareholders representing at least five percent of the capital stock, stating in the request the matters to be discussed (4).
In this case, the general meeting must be called to be held within two months from the date on which the administrators were notarially requested to call it, and the matters requested must necessarily be included in the agenda (4).
How to call a shareholder meeting?
To do so, the judicial secretary, in accordance with the provisions of the voluntary legal legislation, will proceed to call the meeting in accordance with the provisions of Art. 170 of the Capital Companies Act.
The commercial registrar must then convene the meeting within one month of the request being made by the court clerk. For the convocation, he must indicate the place, date, and time and also inform about the agenda, and designate the chairman and the secretary of the meeting.
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Who can attend the shareholder meeting?
In general, all shareholders who have shares registered in their name may attend, at least five days prior to the date on which the meeting is to be held (5).
The shareholders’ meeting is a decision-making space where those members of the company who own shares obviously participate.
When does the shareholder meeting distribute dividends?
Dividends are distributed at the end of each fiscal year, for which a positive result must be observed and by law 10% of the dividends remain in the legal reserve of the company. In order to agree on the distribution, the minutes of the shareholders’ meeting must be taken into account or it must be certified by the administrator.
The law allows the distribution among the shareholders of amounts on account of the profits of the current year (art. 277 LSC) (6). The distribution of profits is made in proportion to the share of each shareholder in the capital stock. Although according to the bylaws there may be a different form of distribution, which must be complied with as provided therein.
Conclusion
The role of the shareholder meeting is key in the decision-making, the shareholders being capital contributors are in charge of approving agreements that generate future benefits and a correct operation in the general management.
Each type of meeting has its own relevance and, therefore, not all ordinary meetings can be extraordinary meetings or vice versa. Each board must comply with internal laws and bylaws and failure to comply with any of these may be penalized by the government.
References
1. Economipedia, General Meeting of Shareholders.
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2. Banco Santander, What is a General Shareholders’ Meeting?
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3. Fernando Vives, Cándido Paz-Ares, Guillermo Jiménez, Rafael Illescas, Juan Sánchez-Calero, Andrés Recalde, Antonio Perdices, Comentarios al régimen de la junta general de accionistas en la reforma del gobierno de las sociedades. 1.ª edition. Thomson Reuters.
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4. Request for call by the minority, Article 168, Royal Legislative Decree 1/2010, of July 2, 2010, approving the revised text of the Capital Companies Act.
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5. Bankinter, ¿En qué consiste una Junta General de Accionistas?
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6. Jesús A, Professor. Almacén de Derecho, La distribución de dividendos (Dividend distribution)
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