Operation and Resolution Methods of Shareholders' Meetings in Joint-Stock Companies as Defined by Japanese Corporate Law

In Japanese corporate law, the shareholders’ meeting is clearly positioned as the supreme decision-making body of a joint-stock company. This institution serves as the most crucial forum for shareholders to directly participate in the management of the company and supervise the executive team, playing an indispensable role in enhancing transparency in management and securing investor trust. This article aims to provide a detailed explanation of the legal aspects of the operation and resolutions of shareholders’ meetings under Japanese corporate law, from the convocation procedures to the requirements for resolutions, and including relevant Japanese case law, all based on specific legal provisions.  

The intended audience for this article includes foreign investors considering investments in Japanese companies, foreign corporations with subsidiaries in Japan, or learners of the Japanese language with an interest in Japanese corporate law. We strive to present clear and direct written expressions that are easily understandable for multilingual speakers learning Japanese, to facilitate a deep understanding of the corporate governance system in Japan.

While Japanese corporate law designates the shareholders’ meeting as the highest decision-making body, in practice, the day-to-day business execution is carried out by the board of directors, which can often reduce the shareholders’ meeting to a mere formality for approval. This is particularly true for listed companies, where resolutions are frequently predetermined through written or electronic voting, shifting the substantial significance of the meeting towards information provision and dialogue with shareholders. The discrepancy between this legal positioning and actual practice can lead to misunderstandings, especially for foreign investors who tend to view the shareholders’ meeting as an opportunity to exert direct influence over the management. Therefore, it is crucial for Japanese companies not only to fulfill formal legal requirements but also to ensure substantial information provision and dialogue opportunities through shareholders’ meetings, thereby constructing a corporate governance structure that meets shareholder expectations.

The Purpose and Role of Shareholders’ Meetings Under Japanese Corporate Law

Legal Status and Authority of Shareholders’ Meetings

Article 295, Paragraph 1 of the Japanese Companies Act states, “The shareholders’ meeting may resolve matters prescribed by this law, as well as all matters concerning the organization, operation, and management of the stock company” . This provision clearly indicates that the shareholders’ meeting is the company’s supreme decision-making body. Shareholders’ meetings have the authority to make extremely important decisions for the company, such as amending the articles of incorporation, appointing and dismissing directors, determining dividends, and changing the company’s structure through mergers and splits .  

Purpose of Holding Shareholders’ Meetings

The purpose of holding shareholders’ meetings primarily falls into two categories: monitoring management and collecting information, and making decisions on important matters.

• Monitoring Management and Collecting Information Shareholders’ meetings provide a forum for shareholders to receive reports on the management team’s business plans and financial status, and to express questions and opinions. This process enhances the transparency of management and allows for verification of proper operations, contributing to improved corporate profitability and stock price stability.  
• Decision-Making on Important Matters Shareholders’ meetings involve core decision-making in company management. All shareholders can exercise their voting rights at the meeting and directly participate in the company’s management.  

Ordinary and Extraordinary Shareholders’ Meetings

There are two types of shareholders’ meetings: ordinary and extraordinary.

• Ordinary Shareholders’ Meetings These are convened after the end of each fiscal year. Typically, they involve the approval of financial statements and the appointment or dismissal of officers. In relation to the record date system of Article 124, Paragraph 2 of the Japanese Companies Act, companies with a March fiscal year-end tend to hold these meetings by the latter half of June.  
• Extraordinary Shareholders’ Meetings These are convened as needed to decide on urgent matters. For example, they may be held to approve significant M&A deals or to dismiss officers due to misconduct.

Procedures for Convening a Shareholders’ Meeting in Japan

The Right to Convene

In principle, the board of directors is responsible for convening a shareholders’ meeting. Article 296, Paragraph 3 of the Japanese Companies Act stipulates that the board of directors shall convene the shareholders’ meeting. As an exception, shareholders who meet certain criteria can also request the convening of a shareholders’ meeting. For example, shareholders who hold at least one-third of the total voting rights can demand that the board of directors convene a meeting, as provided for in Article 297, Paragraph 1 of the Japanese Companies Act. If the board of directors does not respond to this request, shareholders may convene the meeting themselves with the permission of the court, as outlined in Article 297, Paragraph 4 of the Japanese Companies Act.

Notice of Meeting Dispatch Period

The notice of the meeting must be dispatched at least two weeks before the date of the shareholders’ meeting, as a general rule, according to Article 299, Paragraph 1 of the Japanese Companies Act. However, for private companies that do not have provisions for exercising voting rights by written or electromagnetic means, dispatching the notice one week in advance is sufficient. Furthermore, for private companies without a board of directors and without provisions for exercising voting rights by written or electromagnetic means, the articles of incorporation may allow for a shorter notice period.

Foreign investors strongly expect early dispatch and disclosure of the notice and related materials. This is because the statutory period in Japan (two weeks in principle) is insufficient when considering the time required for processing information and decision-making from overseas. Taking into account time differences, mailing periods, and the investors’ own internal approval processes, dispatching at the last minute of the legal period does not provide enough time for quality information gathering and decision-making. Therefore, early disclosure that exceeds legal requirements is not just a service but a necessary condition for foreign investors to effectively exercise their voting rights. If companies seek trust and active engagement from foreign investors, early disclosure should be adopted as a strategic initiative in line with international best practices, enhancing the quality of communication between companies and investors and improving corporate governance transparency.

Contents of the Notice of Meeting

The board of directors must include the following items in the notice of the meeting, as mandated by Article 298, Paragraph 1 of the Japanese Companies Act:

• Date, time, and location of the shareholders’ meeting
• Items to be discussed at the meeting (agenda)
• If voting rights can be exercised by written or electromagnetic means, this must be stated
• Other matters prescribed by the Ministry of Justice Ordinance

Waiver of Convening Procedures

If all shareholders consent, the convening procedures are not necessary. This is provided for in Article 300 of the Japanese Companies Act and is referred to as a “meeting with full attendance.” In the case of a meeting with full attendance, any mistakes in the convening procedures will not become an issue later, as established by precedent. Additionally, in private companies, if all shareholders consent, not only the convening procedures but also the resolution itself can be omitted.

Conducting Shareholders’ Meetings Under Japanese Corporate Law

The Role and Authority of the Chairperson at Shareholders’ Meetings

The chairperson conducts the proceedings of the shareholders’ meeting. They have the authority to maintain order at the shareholders’ meeting and to organize the deliberations, as stipulated in Article 315, Paragraph 1 of the Japanese Companies Act. Furthermore, the chairperson has the power to eject anyone who does not comply with their orders or disrupts the order of the shareholders’ meeting, according to Article 315, Paragraph 2 of the Japanese Companies Act.

While the Japanese Companies Act does not specify who should assume the role of chairperson, it is common practice for the representative director to serve in this capacity. Many companies stipulate the chairperson in their articles of incorporation, and if the articles do not specify or the chairperson is absent, a chairperson will be elected at the beginning of the shareholders’ meeting.

General Flow of Meeting Proceedings

The typical steps in the proceedings of a shareholders’ meeting in Japan include the declaration of opening, the appointment of minute signatories, the declaration of quorum fulfillment, the explanation of agenda items, question and answer sessions, resolutions, and the declaration of closing. The minute signatories are responsible for certifying that the minutes are free from falsehood, and the method of their appointment may vary according to the company’s articles of incorporation.

Japanese Case Law: The Exercise of a Chairperson’s Authority and Unfair Meeting Management

While a chairperson has broad discretion, it must be exercised within the bounds of not unjustly infringing upon shareholders’ rights. Japanese courts place importance not only on adherence to formal procedures but also on whether shareholders have been substantively ensured the opportunity to discuss and express their opinions when determining if the exercise of a chairperson’s discretion constitutes “a significantly unfair method of resolution.” In particular, foreign shareholders, who may be unfamiliar with the practices of Japanese general meetings, necessitate that the chairperson be even more committed to fair and transparent proceedings. Companies should not conduct unilateral meeting management simply because the chairperson has legal authority. Prioritizing dialogue with shareholders, especially foreign shareholders, and creating an environment where they can resolve doubts and express opinions not only secures the validity of general meeting resolutions but also contributes to building long-term shareholder relationships. This is an essential element in enhancing the quality of corporate governance.

Article 314 of the Japanese Companies Act stipulates that directors must provide necessary explanations in response to shareholders’ questions. The Tokyo District Court’s decision on January 28, 1988 (1988), is a case where a resolution was annulled due to insufficient explanation regarding the presentation of retirement bonuses at a shareholders’ meeting. This judgment emphasizes the importance of the duty to explain.

Furthermore, the Tokyo District Court’s decision on December 6, 2007 (2007), involves a case where a company sent documents to shareholders who exercised their voting rights at a general meeting, stating that they would receive a gift voucher (500 yen) regardless of their vote. The court annulled the general meeting resolution, finding that such provision of benefits could unduly influence the exercise of shareholders’ rights. This judgment clearly indicates that the provision of benefits related to the exercise of shareholder rights is generally prohibited. It demonstrates that the prohibition of benefits related to the exercise of shareholder rights is strictly scrutinized, regardless of the amount, for the legitimacy of the purpose. Especially in situations such as the exercise of shareholder proposal rights or proxy fights, companies are more likely to be deemed as having the intent to guide the exercise of voting rights. When providing any benefits to shareholders in connection with a general meeting, companies must be extremely cautious in determining whether the purpose could influence the exercise of shareholder rights, whether it is within the socially acceptable range, and whether it does not affect the company’s financial foundation. Foreign shareholders, due to differences from their own country’s practices, also risk unintentionally engaging in acts that could be deemed as the provision of benefits, making a prior legal check by experts indispensable.

Additionally, the issue of planted questions can arise. The Tokyo District Court’s decision on December 15, 2016 (2016), dealt with a case where a company had its employee shareholders ask prepared ‘planted questions,’ which was contested as infringing on other shareholders’ opportunities to ask questions and their rights. While the court found the act of a listed company preparing questions for employee shareholders and responding to them to be inappropriate, it did not annul the resolution in this case as it did not substantially affect the exercise of voting rights. However, this suggests that such actions could undermine the substantive significance of a shareholders’ meeting.

Resolutions at Shareholders’ Meetings in Japan

Methods of Exercising Voting Rights

Shareholders typically exercise their voting rights by attending the meeting in person. However, a company may, as stipulated in its articles of incorporation, allow shareholders who do not attend the shareholders’ meeting to exercise their voting rights through written or electronic means (e.g., electronic voting). This is provided for under Articles 311 and 312 of the Japanese Companies Act. Shareholders may also exercise their voting rights through a proxy, as provided for under Article 310 of the Japanese Companies Act. Nevertheless, there are restrictions imposed by laws and the articles of incorporation, such as limitations on the number of proxies.

The electronic voting rights platform offers the advantage of reducing the time required for mailing documents. However, investors have pointed out challenges such as the duplication of instruction flows when their holdings include both companies that participate in the platform and those that do not. Additionally, companies with a low percentage of foreign shareholders or institutional investors may not see the benefit of paying to participate in the platform. While the introduction of electronic voting platforms has the potential to facilitate the exercise of voting rights from abroad and encourage participation by foreign shareholders, not all companies are currently equipped to handle this, and investors also need to adapt their systems, which means that widespread adoption will take time and incur costs. In particular, foreign investors who invest in multiple Japanese companies may find themselves burdened by having to deal with different responses from each company. Japanese companies should consider participating in electronic voting platforms to encourage active exercise of voting rights by foreign investors. At the same time, platform providers need to make improvements (e.g., simplifying instruction flows) to enhance investor convenience.

Types and Requirements of Resolutions

Resolutions at shareholders’ meetings in Japan are categorized into three types according to the importance of the matter to be resolved: ordinary resolutions, special resolutions, and extraordinary resolutions. The requirements for these resolutions vary, with ordinary resolutions being the most lenient and extraordinary resolutions being the most stringent.

The Japanese Companies Act sets out very diverse and strict requirements for ordinary resolutions, special resolutions, and extraordinary resolutions (Articles 309(3) and (4) of the Japanese Companies Act), as well as the possibility of modifying these requirements through the articles of incorporation. This layered approach to resolution requirements reflects the Japanese Companies Act’s attempt to balance shareholder rights protection with the stability of company management. For foreign investors, this complex system of resolution requirements can be a significant barrier to investment decisions and involvement in management. In particular, the possibility of modifying requirements through the articles of incorporation (either easing or tightening them) creates specific risks and opportunities that cannot be assessed by legal provisions alone, making thorough due diligence on the articles of incorporation of the Japanese companies being invested in extremely important.

Summary

The operation and resolutions of shareholders’ meetings under Japanese Corporate Law are highly complex due to their significant legal status and the detailed provisions from the convocation procedures to the resolution requirements. In particular, understanding the different resolution requirements such as ordinary, special, and extraordinary resolutions, and grasping the possibility of modifications by the articles of incorporation, are essential for corporate management. Moreover, Japanese case law provides concrete criteria for the impact that issues such as defects in convocation procedures, unfair meeting management by the chairperson, and the provision of benefits have on the validity of shareholders’ meeting resolutions. These precedents clarify that fair operation, which goes beyond mere formal compliance with laws and regulations to substantively protect shareholders’ rights, is required.

For foreign shareholders and companies, language and cultural barriers, as well as practical challenges in using electronic voting platforms, can hinder smooth participation in Japanese shareholders’ meetings. However, in the trend of increasing “activist shareholders,” it is becoming increasingly important for Japanese companies to enhance dialogue with foreign shareholders and practice transparent corporate governance.

Monolith Law Office boasts a wealth of experience and deep expertise in the field of Japanese Corporate Law, particularly in the operation and resolutions of shareholders’ meetings, serving numerous clients within Japan. Our firm includes several attorneys who are qualified in Japan and also hold foreign legal qualifications, enabling us to provide high-quality legal services in both Japanese and English. We offer a wide range of support to ensure that foreign shareholders can appropriately exercise their rights under Japanese Corporate Law, from drafting convocation notices and developing shareholders’ meeting scenarios to creating minutes, advising on the legal validity of various resolutions, and even formulating communication strategies with shareholders. If you have any questions about corporate governance in Japan or specific issues regarding the operation of shareholders’ meetings, please feel free to consult with Monolith Law Office.