Being ASX-listed is the dream or ultimate ambition for many businesses. But as much as it may seem ‘mission accomplished’, the hard work is just beginning.
Beyond the obvious public spotlight and daily scrutiny from analysts, investors and the general public, listed companies have more obligations to shareholders than private companies.
If you own any shares in an ASX listed company, here are six obligations the company has to you.
1. To hold an Annual General Meeting (AGM) at least once annually
Listed companies must hold AGMs at least once annually, no more than five months after the end of its financial year.
Consequently, many hold theirs around October and November and the media will often call the period ‘AGM season’. If a company has just been registered they can put off holding an AGM 18 months after being registered — this may happen in the case of spin offs.
It is a given that directors will attend, and by law so will the auditor or a member of the audit team.
Generally meetings will involve an Address by the Chair & CEO or Managing Director and members will consider the reports, usual resolutions (such as directors’ appointments and remuneration) and other resolutions that may be proposed by members.
2. Hold Extraordinary General Meetings (EGMs) at shareholders’ request
When at least five percent of shareholders request to hold an EGM, companies must do so — and there doesn’t even need to be a reason to do so.
What’s more, the company must pay the expenses of a meeting, including the venue and mailing out the information to shareholders.
Until 2014, an alternate quorum of 100 members could be used to call a meeting but the Abbott government removed this.
Two years earlier, Woolworths were nearly forced by this rule to hold a meeting to vote on a proposal to limit maximum bets in poker machines to $1 but, after taking the shareholders to court, were able to hold it off until their ordinary AGM.
For a company like Woolworths with hundreds of thousands of shareholders, it’s now harder to force an EGM, but not impossible.
3. Open their Registered Office for at least three hours each business day
Under section 145 of the Corporations Act, public companies either must operate a Registered Office and have it open each business day either at least three hours between 9am and 5pm, or at least four hours between 10am and 12pm then from 2pm to 4pm.
The Registered Offices serve the purpose of being the place ASIC sends its notices to the company, and most likely others contacting the company will address correspondence there.
Having gotten to the stage of listing, it is highly unlikely they will not already be open most of the day during business days already — they wouldn’t have made it without pouring hours into it.
Curiously though, there is no requirement for them to actually occupy their Registered Office.
All that’s required is consent from those actually occupying the office that ASIC can send its correspondence there — although this is pretty rare.
4. Prepare financial reports and directors reports biannually
Any financial reports have to comply with accounting standards and give a view of the company’s financial position that is ‘true and fair’.
You will always see reports accompanied with a declaration containing the exact words ‘true and fair’, and the directors have to make that statement as well.
While most companies use the Australian financial year, others may use the calendar year and there is no law or ASX Listing Rule forbidding it.
But they still need to release financial reports 21 days before the company’s next AGM, or four months after the end of the financial year (whichever is earliest).
When you see a Full Year report in February or March rather than August or September, the reason is because that Company uses the calendar year.
5. Not pass a resolution to remove directors without shareholders consent
Directors can only be appointed and removed through votes of the members, and this right overrides the constitution or any agreement between directors and the Company.
This is a perfect example depicting the power directors’ lose by going public and why of the nearly three million businesses in Australia, just over 2200 are listed.
Obviously a director can resign at any time without consent of the shareholders, and will be removed automatically if disqualified by ASIC.
If a removed director is appointed to represent specific interests, they are entitled to stay until a replacement has been found. If directors want to defend their record before the vote, either by a speech at the meeting or circulating a letter to shareholders, they are entitled to.
6. Disclose ‘price sensitive’ news
There is a requirement for companies to release news to the market which may affect the share price of the company, and these are often labelled as price sensitive.
While there’s there’s no specific time limit on when the company needs to disclose the information once it becomes aware of it — but it’s generally accepted that it must be within a few hours.
There are a few exceptions, such as when disclosing that information would be illegal, giving away a trade secret, or a deal hasn’t been done.
One recent case study was DropSuite (ASX: DSE) who were queried by the ASX about an enmasse user deactivation which they notified the market around 8.30am on Wednesday October 31 2018.
They told the market they identified the deactivation at 11am on the previous Monday
They said they had an idea of the scale of the deactivation at 2.30pm on the Tuesday and;
They finished a financial assessment of the deactivation at about 5pm on the Tuesday
In this case, it appears the ASX hasn’t taken any information, accepting that DSE had to take a day or two to get a full understanding of the material impact the deactivation could have.
With most of these (among other regulations), directors may be exempt in ‘reasonable’ circumstances, although most sections of the Corporations Act leave this to the courts to determine what is reasonable.
This is not intended to be a comprehensive list of all obligations directors hold to shareholders nor general or specific legal advice.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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