In anticipation of the annual general meetings of participants, we consider it necessary to highlight one of the issues that is included in the agenda - approval of the director’s report on the company’s activities.

In practice, many managers perceive this report as a formality. And in vain. A well-written report is a tool for ensuring transparency of management and exercising the rights of participants to receive complete and reliable information about the state of affairs in the company.

Why shouldn't you treat the director's report as a formality?

1. Preparation of information about the activities of the company is the direct responsibility of the executive body, enshrined in Part 8 of Art. 39 of the Law “On Business Companies”.

2. Director is a hired employee who is accountable to the general meeting of company participants (Part 4 of Article 53 of the Law “On Business Companies”). Participants do not always want to delve into operational processes, so the director’s report is the main way to inform the owners about the work done and show how effectively the director managed the property entrusted to him.

3. Summing up the results of the year is the basis for making plans for the future. The report helps owners understand where the company is heading and make informed decisions about the future direction of development.

What is important to remember?

1) Submission period. Information must be available for review by participantsat least 20 days before the date of the meeting(Part 10, Article 39 of the Law “On Business Companies”). This means that the director needs to start preparing the report well in advance.

2) Method of familiarization. The notice of the general meeting must indicate the address at which participants can familiarize themselves with the information. Documents should also be available during the meeting itself.

3) Approval of the director’s report is a mandatory issue for consideration at the annual meeting.

What should be contained in the director's report?

Although the legislation does not establish a strict form of the report, Part 8 of Art. 39 of the Law “On Business Companies” contains a “basic minimum” of information that must be disclosed. To make the report complete and informative, we recommend structuring it in accordance with the following blocks:

1. Rewards and compensation

This block should contain:

- information on the annual remuneration of members of the board of directors (supervisory board);

- information on the annual amount of remuneration for members of the executive body of the business company, the annual amount of payment for the services of the management organization.

2. Corporate actions and structure

This block must include:

- information on the gratuitous transfer or sale of shares in the authorized capital (shares) of a business company to members of management bodies and (or) employees of the business company;

- name of business companies, size of shares in the authorized capital (number of shares) owned by the business company;

- the size of shares in the authorized capital (number of shares) alienated and (or) acquired by the business company in the reporting period;

3. Analysis of financial condition

This is the basics. In this block it is important to reflect:

- indicators characterizing the dynamics of changes in the value of the net assets and authorized capital of a business company for the last three completed financial years, including the reporting year, or, if the business company has been operating for less than three years, for each completed financial year;

If the value of net assets at the end of the year was less than the authorized capital, the report must also contain:

- results of an analysis of the causes and factors that, in the opinion of the authorized body of the business company, led to a decrease in the value of net assets;

- a list of measures to bring the value of the net assets of a business company in accordance with the size of its authorized capital.

4. Transactions requiring special attention

In this block of the report, it is necessary to reflect information on major transactions, other transactions, the decision on which, in accordance with the charter of a business company, is subject to the procedure for making a decision on a major transaction (the subject, parties, amount and details of contracts for such transactions should be indicated), as well as on transactions of a business company in which its affiliates were interested (information should include: parties, subject, essential conditions, criteria of interest and expected benefit).

5. Results and strategic planning

This block is general, but no less important. It must include:

- review of the most important events in the activities of a business company that occurred during the reporting period (key projects, production indicators, marketing activity and its results, work with personnel (staff changes, training, key hires), etc.);

- plans and forecasts for the activities of a business company for the next financial year (goals, projects, tasks, required resources, expected financial results).

6. Other information

This list is not exhaustive. The director may include in the report any other information provided for by the company's charter or LPA.

Is there responsibility?

There are no direct sanctions for failure to prepare this information. However, the consequences can be quite serious.

The main risk lies in corporate disputes. Failure to provide or provision of incomplete information is a violation of the rights of participants. Such a violation may become the basis for challenging decisions made at the annual general meeting in court (Part 7, Article 45 of the Law “On Business Companies”).

Invalidation of, for example, a decision on the distribution of profits or the election of management bodies can entail significant financial and reputational losses for the company.

Practical recommendations

1. The law requires approval of “annual reports” at the annual meeting (Part 2 of Article 36 of the Law “On Business Companies”). However, their content is not detailed. It is advisable to combine two documents: prepare “information on the activities of the company” in the format of the “annual report of the executive body” and include the issue of its approval on the agenda. This will optimize document flow and completely meet legal requirements.

2. Transparency is the key to trust. In the report, it is important to talk not only about the company’s achievements, but also about the company’s problems. An honest analysis of failures demonstrates management maturity.

3. It is necessary to avoid “water” in the report. It is important to write to the point so that the report actually makes sense. For the same reason, it is important to confirm all data with analysis. Numbers without explanation are useless. It is much better to write not “revenue amounted to X”, but “revenue increased by Y% because...”.

A well-prepared director’s report is not just an obligation, but an indicator of management maturity and respect for business owners. It builds trust, helps make the right strategic decisions and protects the director himself from possible claims in the future.

Lawyers from the Corporate Law practice. M&A" GRATA International, Belarus is ready to provide assistance in preparing for the annual meeting, developing draft documents and advising on compliance with corporate procedures.

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