by Statutory Meeting is the first general meeting of the shareholders of a public company limited by shares or a company limited by guarantee having share capital, which must be held within a specific period after incorporation. Under the Companies Act (earlier Section 165 of the 1956 Act; now omitted in the 2013 Act), it was compulsory to hold this meeting within six months but not later than nine months from the date on which the company became entitled to commence business. The main purpose of the statutory meeting was to inform shareholders about important matters such as share allotment, receipts of cash, contracts entered, and preliminary expenses. It ensured early transparency and accountability in company operations.
Functions of Statutory Meeting:
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Informative Functions
The primary function of a statutory meeting is to inform shareholders about the company’s initial affairs after incorporation. The Statutory Report, presented at the meeting, contains details such as the number of shares allotted, total cash received, preliminary expenses incurred, contracts entered into, and particulars of directors, auditors, and company secretary. This provides transparency regarding the financial and organizational position of the company in its formative stage. By furnishing these details, the statutory meeting allows shareholders to understand how their contributions are utilized and ensures that the promoters and directors act in good faith and within legal boundaries.
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Supervisory and Deliberative Functions
Another important function of the statutory meeting is to provide shareholders an opportunity to discuss, question, and supervise the activities of promoters and directors. Shareholders can raise concerns regarding contracts, expenses, or company policies, and can pass resolutions for modifications. The meeting ensures that the management is accountable from the very beginning and allows shareholders to guide the company’s future direction. It also serves as a platform for approving any preliminary contracts or proposals. Thus, the statutory meeting acts as a check on management powers, fostering confidence among members and ensuring a democratic start to company operations.
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Financial Functions
A statutory meeting helps shareholders evaluate the financial position of the company at the initial stage. Through the statutory report, details of share allotment, cash received, unpaid shares, and preliminary expenses are disclosed. This ensures shareholders are aware of how their money is being utilized. It also provides transparency about payments made to promoters, directors, or managers. Such financial disclosure enables shareholders to detect misuse of funds, irregularities in contracts, or excessive preliminary expenses. Hence, the statutory meeting plays a crucial role in building financial discipline, ensuring accountability, and establishing trust between management and members from the outset.
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Regulatory and Compliance Functions
The statutory meeting serves as a regulatory requirement, ensuring compliance with company law provisions. Holding this meeting within the prescribed time frame was mandatory for certain companies under earlier provisions of the law. Non-compliance could attract penalties and even affect the company’s right to commence business. The meeting also ensured that shareholders had early oversight of the promoters’ activities. By enforcing this obligation, the law intended to protect investors, especially small shareholders, against fraudulent practices. Thus, the statutory meeting functioned not only as a governance tool but also as a legal safeguard promoting transparency and fair corporate practices.
Contents of Statutory Report:
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Shares Allotted and Cash Received
The statutory report must state the total number of shares allotted, distinguishing fully paid-up and partly paid-up shares, along with the total amount of cash received in respect of such allotment. This ensures shareholders are informed about the capital actually raised by the company at the initial stage, providing clarity on its financial strength and utilization.
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Preliminary Expenses
It must include details of preliminary expenses incurred by the company, such as legal charges, fees for registration, expenses for drafting Memorandum and Articles, and payments to promoters. Disclosure of these expenses helps shareholders understand the costs involved in incorporation and ensures that funds raised by the company are utilized transparently without misuse by promoters or directors.
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Contracts to be Approved
The statutory report should contain particulars of any contracts entered into by the company that require approval at the statutory meeting. This gives shareholders an opportunity to examine, discuss, and approve such contracts, ensuring they are fair and beneficial for the company. It also prevents promoters or directors from binding the company to unfavorable agreements.
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Particulars of Directors, Auditors, and Secretary
The report must state the names, addresses, and occupations of the company’s directors, auditors, manager, and secretary. This information provides transparency about the people managing the company, their professional roles, and accountability. It also allows shareholders to know the responsible authorities overseeing the company’s financial statements, compliance obligations, and day-to-day administrative operations at an early stage.
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Arrears on Shares
Details of calls in arrears, if any, must be included in the statutory report. This shows the unpaid portion on shares by shareholders and highlights the financial obligations still due to the company. Such information helps shareholders assess the company’s working capital position, liquidity, and possible risks associated with defaulting members who have not paid their share contributions.
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Commission, Brokerage, or Underwriting
The report must disclose details of commission, brokerage, or underwriting paid or payable to promoters or intermediaries during the issue of shares. This ensures shareholders are aware of the promotional and fundraising expenses incurred by the company. It also helps them judge whether such payments were reasonable and necessary, preventing exploitation of company funds by promoters.
Members of Statutory Meeting:
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Shareholders (Members of the Company)
The primary participants in a statutory meeting are the shareholders, i.e., the members of the company. They attend to review the statutory report, raise questions, and seek clarifications regarding shares allotted, preliminary expenses, contracts, and management details. Shareholders have the right to discuss company affairs and pass resolutions. Their involvement ensures accountability of promoters and directors, promotes transparency in operations, and strengthens investor confidence in the company’s future governance, growth, and financial decision-making.
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Directors of the Company
All directors are expected to attend the statutory meeting. They play a crucial role in presenting the statutory report, answering shareholders’ queries, and explaining contracts, expenses, and financial matters. Their presence allows shareholders to interact directly with management and understand the company’s policies. Directors are accountable for ensuring that incorporation formalities were carried out properly, funds raised were fairly utilized, and promoters’ actions complied with legal requirements. Their active participation promotes trust and ethical corporate governance.
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Company Secretary and Auditor
The company secretary attends the statutory meeting to assist directors in administrative tasks, record proceedings, and ensure compliance with statutory requirements. The auditor, on the other hand, provides independent verification of the company’s accounts and expenses mentioned in the statutory report. Both play a vital role in ensuring transparency, accuracy, and accountability in the company’s early functioning. Their presence reassures shareholders that the company’s financial and legal disclosures are reliable, complete, and free from material misstatements.
