Enabling Virtual-Only Shareholders Meetings: Explaining the New System of 'Shareholders Meetings Without a Specified Location'

In recent years, it has become difficult to hold traditional shareholder meetings that gather shareholders in a large venue. As a result, many companies have adopted a hybrid model of shareholder meetings, which combines a physical venue with internet broadcasting to conduct resolutions.

A “Virtual-Only Shareholder Meeting” takes this hybrid model a step further, conducting the shareholder meeting solely through internet broadcasting without designating a physical venue.

In this article, we will explain the implementation requirements and procedures for Virtual-Only Shareholder Meetings. We will also touch on points to consider when holding such meetings. Please use this as a reference when considering whether your company should conduct shareholder meetings in a real, hybrid, or virtual-only format.

What is a Virtual-Only Shareholders’ Meeting?

A Virtual-Only Shareholders’ Meeting is a system where shareholders attend the meeting solely via internet broadcast, without the need for a specific venue. However, until now, it was considered impossible to implement due to the requirement under the Japanese Companies Act for a physical location to hold shareholders’ meetings.

Four Types of Shareholders’ Meetings

In the ‘Implementation Guide for Hybrid Virtual Shareholders’ Meetings’ released by the Ministry of Economy, Trade and Industry in June 2020, shareholders’ meetings are classified into the following four types:

1. Real Shareholders’ Meeting
2. Hybrid Participation-Type Virtual Shareholders’ Meeting
3. Hybrid Attendance-Type Virtual Shareholders’ Meeting
4. Virtual-Only Shareholders’ Meeting

The Hybrid Participation-Type Virtual Shareholders’ Meeting (2) allows shareholders to listen to the content of the Real Shareholders’ Meeting online. However, shareholders who listen in are not considered to have attended the shareholders’ meeting.

The Hybrid Attendance-Type Virtual Shareholders’ Meeting (3) takes this a step further, allowing online listeners to be treated as ‘attending’ under the Japanese Companies Act.

The Virtual-Only Shareholders’ Meeting (4) is a method of holding the shareholders’ meeting solely online, which was considered impossible under the previous Japanese Companies Act.

Provisions of the Companies Act and the Background of System Implementation

Since 2020, the number of companies holding Hybrid Shareholders’ Meetings (2 and 3) has increased due to interpretations of the Japanese Companies Act, in order to avoid situations where a large number of shareholders gather.

In other words, while holding a meeting at a physical venue, companies requested shareholders to refrain from attending and to exercise their voting rights in advance.

However, under the previous Japanese Companies Act, shareholders’ meetings had to be held at a designated physical location, making it impossible to hold a Virtual-Only Shareholders’ Meeting (4) without a change in the law.

Special Provisions of the Companies Act by the Act on Enhancement of Industrial Competitiveness

Given the above background, a partial amendment to the ‘Act on Enhancement of Industrial Competitiveness’ enacted in June 2021 (Japanese Act on Enhancement of Industrial Competitiveness) has made it possible to hold a Virtual-Only Shareholders’ Meeting, provided certain conditions are met.

There are several benefits to a Virtual-Only Shareholders’ Meeting, including:

• Easier participation for shareholders in remote locations
• Reduced operating costs as there is no need to secure a venue

Requirements for Holding a Virtual-Only Shareholders’ Meeting

In order to hold a virtual-only shareholders’ meeting, the following four requirements must be met:

1. Being a listed company
2. Receiving ‘confirmation’ from the Minister of Economy, Trade and Industry and the Minister of Justice regarding the applicability of the ‘Ordinance Requirements’
3. Establishing a provision in the articles of incorporation through a special resolution at the shareholders’ meeting (there is a transitional measure)
4. Meeting the ‘Ordinance Requirements’ at the time of the convening decision

We will explain these in detail below.

Confirmation of Applicability of ‘Ordinance Requirements’

In order to hold a virtual-only shareholders’ meeting, you must meet all of the following ‘Ordinance Requirements’ and receive confirmation from the Minister of Economy, Trade and Industry and the Minister of Justice.

1. Appointment of a person in charge of matters related to the method of communication
2. Formulation of a policy on measures against problems related to the method of communication
3. Determination of a policy to consider the interests of shareholders who have difficulty using the internet as a method of communication
4. The number of shareholders listed/recorded in the shareholders’ register is 100 or more

As shareholders are the owners of the company, it is unacceptable for them to be prevented from participating in the shareholders’ meeting due to communication problems. Therefore, measures must be taken against communication problems and a person in charge must be appointed in case of emergencies.

In order to protect the interests of all shareholders, it is also necessary to take measures that consider the interests of shareholders who are not familiar with the internet. In addition, since there is little need to hold a virtual-only shareholders’ meeting if the number of shareholders is small, this system targets companies with 100 or more shareholders.

Amendment of Articles of Incorporation for Holding a Virtual-Only Shareholders’ Meeting

In order to hold a virtual-only shareholders’ meeting, you must amend the articles of incorporation to state that a shareholders’ meeting can be held without specifying a place.

However, a special resolution of the shareholders’ meeting is required to amend the articles of incorporation. A special resolution of the shareholders’ meeting requires the participation of shareholders holding two-thirds of the voting rights and the approval of a majority of the voting rights of the shareholders present. However, for listed companies, a transitional measure has been taken to consider that there is a provision in the articles of incorporation for two years after the enforcement on June 16, 2021 (Gregorian calendar year).

Implementation of Virtual-Only Shareholders’ Meetings

In the following, we will explain the specific methods for implementing virtual-only shareholders’ meetings.

Convening Shareholders’ Meetings

First, the board of directors decides on matters such as holding the shareholders’ meeting without specifying a location, adopting the exercise of voting rights in advance by written form, the method of communication, and the handling of cases where the exercise of voting rights in advance and on the day overlap, in a convening resolution.

In the actual notice of convocation, in addition to the matters of convocation decision under Article 299, Paragraph 4 of the Japanese Companies Act, the following matters are stated and sent to shareholders:

1. Admission of the exercise of voting rights in advance by written form
2. Method of communication
3. Handling of cases where the exercise of voting rights in advance and on the day overlap
4. Method of attending the virtual-only shareholders’ meeting (URL, ID, password, etc.)
5. Policy for dealing with communication failures
6. Policy for consideration of shareholders who cannot cope with digital

Reference: Amendment of the Articles of Incorporation Model and the Notice of Convocation Model in accordance with the enforcement of the Law to amend part of the Act on Enhancement of Industrial Competitiveness, etc.

Proceedings of Shareholders’ Meetings

The actual proceedings of the virtual-only shareholders’ meeting do not significantly differ from those of a real meeting. A special website mentioned in the notice of convocation will be live-streamed, and a system will be set up to allow for questions, motions, or the exercise of voting rights.

Resolutions will be voted on by integrating the tally from the voting rights exercise system on the day and the tally data from the pre-exercise. This method will also make it possible to report preliminary results of the vote on the day of the shareholders’ meeting.

Points to Note When Holding a Virtual-Only Shareholders’ Meeting

By holding a virtual-only shareholders’ meeting, you can reduce the time and cost of securing a physical venue. However, it is important to pay attention to the following points.

Transitional Measures for Deemed Amendment of Articles of Incorporation Last for Two Years

Since the implementation of the system on June 16, 2021 (2021 in the Gregorian calendar), listed companies are deemed to have amended their articles of incorporation to allow for virtual-only shareholders’ meetings for a period of two years. However, this deemed provision is a transitional measure for two years.

Furthermore, amendments to the articles of incorporation to hold a virtual-only shareholders’ meeting cannot be resolved at a virtual-only shareholders’ meeting. Therefore, you must first hold a real shareholders’ meeting and pass a special resolution to amend the articles of incorporation.

A special resolution at a shareholders’ meeting requires the attendance of shareholders holding a majority of voting rights and the consent of at least two-thirds of the voting rights of the attending shareholders (Japanese Companies Act, Article 309, Paragraph 2).

Practical Measures Against Communication Failures are Essential

In conducting a virtual-only shareholders’ meeting, measures against communication failures and responses when they occur could become a realistic risk. Depending on the timing of the communication failure, it could become a cause for cancellation of the resolution.

As measures against communication failures, it is necessary to strengthen communication lines in advance, prepare backups, or set reserve days.

Also, if you make a chairman’s discretionary resolution on postponement/continuation (Japanese Industrial Competitiveness Enhancement Act, Article 66, Paragraph 2), the chairman can quickly decide on postponement/continuation with his/her authority when a communication failure occurs.

Summary: Implementation Requirements and Procedures for Virtual-Only Shareholders’ Meeting

With the possibility of holding virtual-only shareholders’ meetings, companies can reduce time and costs, and shareholders can cut down on time and expenses for attending from distant locations.

However, to implement this, various preparations must be made in advance, such as amending the articles of incorporation, dealing with communication failures, and considering shareholders who cannot adapt to digital methods.

For holding a virtual-only shareholders’ meeting, it is advisable to prepare while consulting with a lawyer who is not only familiar with the Japanese Company Law but also with system troubles.

Introduction to Our Firm’s Measures

Monolith Law Office is a legal office with high expertise in both IT and law, particularly in the field of the Internet. In recent years, virtual-only shareholder meetings have been attracting attention, and the need for legal checks in their hosting process is increasing. Our firm provides solutions related to IT and startups.