CALL NOW +91 – 8800110989 Introduction Quorum in Company Law
Registered companies operating in India have to comply with the company law. In order to regularize the corporate business the company law provides a framework under which various businesses operate. Quorum is one the requirements under the company law which ask the company to hold general meetings and Board meetings at periodic intervals. These meetings are vital for establishing the legitimacy of the corporate decision making. Understanding the requirement, rules and regulation associated with Quorum is of paramount importance for the major stakeholders of the company. In this article we dive deep to understand various nuances related to Quorum.
What is Quorum in Company Law:
The word “Quorum” is derived from the Latin word meaning “of whom.” Under companies act of 2013 it refers to the minimum number of members required to be present at a meeting to ensure that the companies follow this regulation and that such meetings are held in accordance with company law. It ensures that decisions are made by a representative body rather than by a minority.
Key Components of Quorum in Company Law:
Legal Framework: The requirements for quorum typically outlined in a company’s articles of association or bylaws. The minimum number and percentage of the members required to be present are mentioned clearly for each type of meetings like, general meetings, board meeting, extraordinary general meetings etc.
Flexibility and Customization: There are provisions for flexibility and customization in quorum requirements. However, this depends on the size and type of company, the jurisdiction of the company also plays an important part. In some jurisdictions companies are allowed to determine the minimum threshold for quorum as per the requirements whereas in other cases the minimum threshold is provided by the quorum.
Composition: The minimum member requirement under quorum is determined either in fraction or in percentage to check the majority. The majority can be decided like having ⅔ of the total eligible members. This concept makes sure that corporate decisions making was done with majority not be minority.
Also Read :- The Final Chapter: Understanding the Dynamics of Winding Up of a Company
Significance of Quorum in Company Law:
Legitimacy and Validity: A quorum establishes the legitimacy of the corporate decision making. As by meeting the minimum requirement mandate it ensures the corporate decision was made by absolute majority, in a democratic way and has approval from majority of the stakeholders. Decisions taken without quorum are not considered to be valid and those decisions will be subject to challenge.
Accountability and Representation: Quorum by setting the requirement of minimum number of members to be present during the meeting for decision making sets accountability. Minimum requirement makes sure that decision was made by majority of the stakeholders rather than few influential people. This brings transparency in corporate decision making by holding the stakeholders accountable for representation.
Efficient Decision-Making: Since there is a minimum level of requirement the decision making in those corporate meetings are very efficient. Until a sufficient number of participants are not available corporate decisions are considered invalid. This avoids delay in decision making due to adventism and ensures there is participation from the majority of the stakeholders. The participation and engagement from the majority ensures decisions are discussed and well thought before being passed.
Quorum Required for a General Meeting
Under section 103 of Company’s Act the requirement for a general meeting has been prescribed. The minimum quorum will remain the requirement unless the company by law requires a larger quorum.
For Public Companies
- There is a minimum requirement of 5 members to be present if as on the date of the meeting being held, if the number of members in the company is not more than 1000.
- For the companies which have more than 1000 members but less than 5000 members, minimum 15 members to be present as on the date of the meeting.
- If the number of the members in the company exceeds more than 5000 than minimum 30 members need to be present as on the date of meeting.
For Private Companies:
If the company is private then regardless of the number of members, there should be a minimum of 2 members available to meet the quorum requirement and it to be considered as a valid meeting.
Non fulfilment of the quorum requirement will result in the adjournment of the meeting and it needs to be rescheduled another day. The participant must be informed about the next meeting personally also through advertisement.
Challenges and Considerations:
Meeting Attendance: Meeting the quorum sometimes becomes challenging, especially in the case of those companies who have geographically diverse stakeholders. Managing the attendance and ensuring availability on the meeting date becomes challenging. Harnessing the technology can help in overcoming the geographical challenges by using the digital mode of participation.
Quorum Failures: The failure of quorum can delay the important decisions and add additional cost. If there is not enough participation as per company law or companies by laws then the meeting will be adjourned and the new meeting date needs to be decided. The decision will remain suspended till the quorum requirements are not met.
Quorum Waivers: There are cases when quorum waiver can be granted. Granting the waiver to quorum will be considered valid only if it’s done as per the company law. The meeting can proceed without the quorum only under certain circumstances prescribed under the company law. If not done in accordance with the law the decision made in the meeting will be subject to be challenged.
Also Read :- Unveiling the Essence of Section 8 Company Registration under the Companies Act 2013
Conclusion:
The quorum under the company law ensures the legitimacy, accountability, and efficiency of corporate decision-making by delineating the minimum number of members required for meetings. It ensures that the corporate decision making is done in a democratic way not in an autocratic way. Adherence to quorum requirements remains paramount in upholding the integrity and credibility of corporate governance practices.
Frequently Asked Questions
What do you mean by quorum in company law?
Under Companies Act of 2013 it refers to the minimum number of members required to be present at a meeting to ensure that the companies follow this regulation and that such meetings are held in accordance with company law.
Why is it called quorum?
It is called “quorum” because it is derived from Latin language and it means “of whom.” It refers to the minimum number of members required to be present at a meeting for decisions to be valid, reflecting the collective will of the group.
