Defects in the Notice of Shareholders' Meetings as Defined by Japanese Corporate Law and Related Case Law

Proper management of a shareholders’ meeting is crucial for corporate executives in Japan, as it ensures smooth corporate governance and maintains a positive relationship with shareholders. In particular, if there are flaws in the ‘convocation’ process of a shareholders’ meeting, the validity of the resolutions passed at that meeting may be contested, potentially causing unexpected turmoil and significant impact on the company’s management. To prevent such legal risks and ensure stable company operations, a deep understanding of the Japanese Corporate Law regarding the convocation of shareholders’ meetings is essential. This article will explain the basic principles of convening shareholders’ meetings under Japanese Corporate Law, the types of flaws that can occur, and key judicial precedents.

Basic Principles of Shareholders’ Meeting Convocation Under Japanese Corporate Law

Japanese Corporate Law provides detailed provisions to ensure the proper conduct of shareholders’ meetings. These provisions serve as a fundamental framework to guarantee shareholders the opportunity to participate in meetings and exercise their voting rights appropriately, while maintaining transparency and sound management of the company.

Determining the Convener and Agenda Items

The convocation of a shareholders’ meeting is primarily the responsibility of the board of directors, as stipulated by Article 296, Paragraph 3 of the Japanese Corporate Law. This is closely related to the fact that the board of directors is the body that decides the company’s business execution, and the holding of a meeting is considered a part of the company’s significant business activities. When convening a meeting, directors must determine the date, location, agenda items, and whether shareholders who cannot attend can exercise their voting rights in writing or by electronic means, as defined by Article 298, Paragraph 1 of the Japanese Corporate Law. By clarifying these matters, shareholders can understand the content of the meeting in advance and prepare accordingly. For managers, accurately determining these items and thoroughly providing information to shareholders is crucial to avoid disputes later on.

As an exception, shareholders who meet certain conditions can also request the convocation of a shareholders’ meeting. Specifically, shareholders who have held at least 3/100 of the total voting rights for six months can request the board of directors to convene a meeting (Article 297, Paragraph 1 of the Japanese Corporate Law). If the company does not promptly proceed with the convocation despite this request, the shareholders may convene the meeting themselves with the court’s permission (Article 297, Paragraph 4 of the Japanese Corporate Law). This is an important provision to protect the rights of minority shareholders and prevent the management from refusing to hold meetings, and managers have a duty to respond appropriately to shareholders’ requests for convocation.

Method and Period of Convocation Notice

The notice of a shareholders’ meeting is typically sent in writing by companies with a board of directors, as per Article 299, Paragraph 2 of the Japanese Corporate Law. However, with the consent of the shareholders, electronic methods such as email can also be used, and this method has become increasingly popular in recent years (Article 299, Paragraph 3 of the Japanese Corporate Law). This accommodates the advancement of digitalization and enhances convenience for both the company and shareholders.

Regarding the notice period, public companies must issue the convocation notice at least two weeks before the meeting date (Article 299, Paragraph 1 of the Japanese Corporate Law). This aims to provide shareholders with sufficient time to consider the proposals and prepare for the exercise of their voting rights. In private companies, the notice period can be shortened to one week before the meeting date if stipulated in the articles of incorporation. This shortened period reflects the personalityistics of private companies, where the number of shareholders is smaller and information sharing among them is relatively easy. Managers must adhere to the appropriate notice period according to the company’s type and ensure that all shareholders, especially Japanese shareholders, are reliably informed.

Omission of Convocation Procedures

The system of ‘unanimous shareholders’ meetings,’ where a meeting can be held without the convocation procedures if all shareholders agree, is recognized under Article 300 of the Japanese Corporate Law. This system is often used in closely-held companies, such as family businesses. By omitting strict convocation procedures, it enables efficient company operations and prioritizes substantive consensus based on the close relationships among shareholders, demonstrating the flexibility of Japanese Corporate Law.

The detailed rules regarding the convocation of shareholders’ meetings are not merely formal procedures but function as fundamental safety devices to protect the rights of shareholders, especially minority shareholders. However, exceptions like ‘unanimous shareholders’ meetings’ acknowledge that strict formalism can be excessive in companies with few shareholders and close relationships, prioritizing substantive consensus formation. This contrast highlights the underlying purpose of the rules, namely, the importance of protecting dispersed and numerous shareholders.

Types and Legal Effects of Defects in the Convocation of Shareholders’ Meetings Under Japanese Corporate Law

In Japanese corporate law, defects in the resolutions of shareholders’ meetings are classified into three levels according to their severity, each with different legal effects and methods of contestation. This multi-tiered classification aims to balance the need for legal stability in corporate activities with the correction of fundamental irregularities. As a foreign executive, it is essential to understand the impact these defects can have on your company’s management and to prepare to respond appropriately.

Types of Flaws in Resolutions: Rescindable, Invalid, and Non-Existent Resolutions Under Japanese Corporate Law

In Japanese corporate law, flaws in shareholder meeting resolutions are broadly classified into three categories according to their severity: “rescindable resolutions (flaws that can be rescinded),” “invalid resolutions (grounds for invalidity),” and “non-existent resolutions (grounds for non-existence).”

Resolutions Subject to Cancellation Under Japanese Corporate Law (Article 831, Paragraph 1)

This refers to relatively minor procedural and substantive defects. The main grounds for cancellation are “when the procedures for convening a shareholders’ meeting or the method of resolution violates laws or the articles of incorporation, or is significantly unfair” (Article 831, Paragraph 1, Item 1 of the Japanese Corporate Law). Specific examples include omissions in notifying some shareholders, deficiencies in the content of the notice, insufficient notice periods, lack of quorum, violation of the duty to explain, and interference with the exercise of voting rights. The period for filing this lawsuit is set within three months from the date of the resolution, and the plaintiff’s eligibility is limited to those with a strong interest in the resolution, such as shareholders, directors, and auditors. This short litigation period aims to quickly establish the legal stability of the resolution. As a manager, it is crucial to verify the presence of any defects within this three-month period and consider necessary measures accordingly.  

Invalid Resolutions Under Japanese Corporate Law (Article 830, Paragraph 2)

Resolutions that violate laws and regulations fall under this category, and are considered to have more serious defects than those that are merely subject to cancellation. For example, resolutions that contain content prohibited by Japanese Corporate Law are included in this category. Invalid resolutions are inherently void without the need for a final court judgment, and there are no specified time limits for filing lawsuits or restrictions on who has the right to sue. Anyone can assert their invalidity at any time. This is because the imperative of justice, which prioritizes correcting the fundamental illegality of resolutions and upholding the rule of law, takes precedence.  

Non-Existent Resolutions Under Japanese Company Law (Article 830, Paragraph 1)

This represents one of the most serious defects, where a resolution does not physically exist—for example, when minutes are created without an actual meeting having taken place—or when the flaws in the convening procedure or the method of resolution are so significant that the shareholders’ meeting itself cannot be recognized legally. Specific instances include cases where a general meeting is held without any notice of convocation being sent, or when a director, who is not the representative director, convenes a general meeting without a board of directors’ resolution. In these cases, there are no restrictions on the period for filing a lawsuit or on who has the right to sue.  

The Three-Tier Defect Classification System Under Japanese Corporate Law

The three-tier defect classification system illustrates the balance between two core demands in corporate law: ensuring ‘legal stability’ and correcting ‘fundamental illegality.’ For relatively minor defects (grounds for rescission), a short litigation period of three months is established to quickly confirm the legal stability of resolutions. This is because if resolutions could be constantly overturned due to trivial procedural mistakes, it would lead to extreme instability in company management and threaten the safety of transactions with third parties. On the other hand, for extremely serious defects (grounds for nullity or non-existence of resolutions), there is no limitation on the litigation period, allowing the fundamental illegality of such resolutions to be contested at any time, prioritizing the realization of justice. This structure demonstrates that Japanese corporate law does not merely adhere to formalism but also considers substantive effects and legal order.  

The Principle of Discretionary Dismissal (Article 831, Paragraph 2 of the Japanese Companies Act)

Article 831, Paragraph 2 of the Japanese Companies Act stipulates that even if there are violations of laws or articles of incorporation in the procedures for convening a shareholders’ meeting or in the method of resolution, the court may dismiss a shareholder’s request for cancellation if it recognizes that “the fact of the violation is not significant and does not affect the resolution.”

This provision is a crucial mechanism to prevent the easy cancellation of shareholders’ meeting resolutions due to minor procedural defects, which could significantly harm the legal stability of a company. Courts take a practical perspective, considering not only the formal legal violations but also the substantive impact of those violations and the extent to which they undermine the company’s legal stability. This principle is an important means for courts to introduce practical realities into the strict formalism of the law.

However, if a defect is deemed “significant,” even if it is recognized that the defect does not affect the outcome of the resolution, the court is not permitted to exercise discretionary dismissal and should acknowledge the cancellation of the resolution, as established by precedents such as the Supreme Court decision on March 18, 1971 (1971). This reflects a strong commitment to procedural fairness, indicating that defects that affect the core of the procedure cannot be overlooked, even if they do not impact the result.

Types and Legal Effects of Shareholders’ Meeting Resolutions Defects Under Japanese Corporate Law

We have compiled a table outlining the types of lawsuits related to defects in shareholders’ meeting resolutions in Japan, their legal effects, and the requirements for filing a lawsuit.

Key Criteria for Determining Defects in the Convocation of Shareholders’ Meetings Under Japanese Corporate Law

Japanese courts have rendered diverse judgments on defects in the convocation of shareholders’ meetings, tailored to the specifics of each case. These precedents serve as vital guidelines for how the provisions of the Japanese Companies Act are applied in practice.

Flaws in the Authority to Convene Shareholders’ Meetings

Flaws in the authority to convene shareholders’ meetings are one of the most fundamental issues affecting the validity of resolutions made at such meetings.

If a shareholders’ meeting is convened by a director other than the representative director without a valid resolution from the board of directors, which has the authority to decide on the convening of the meeting, such a meeting cannot be considered a shareholders’ meeting with legal significance in Japan, and any resolutions made there are deemed “non-existent” (Supreme Court of Japan, August 20, 1970 decision). This is a case where the lack of authority to convene was judged to be a flaw so serious that it negated the existence of the meeting itself. This precedent clearly demonstrates the principle that the legitimacy of a shareholders’ meeting directly stems from the approval and authority of the appropriate internal corporate body (the board of directors). If a meeting is convened without a proper board resolution or by an unauthorized person, it is not merely a procedural error but is considered to fundamentally compromise the “very existence” of the meeting or its resolutions. Managers must ensure that the convening of shareholders’ meetings always goes through a valid resolution by the board of directors.

Similarly, a meeting convened without a valid resolution by the board of directors, which has the decision-making authority, is considered a “serious flaw” that does not allow for discretionary dismissal, even if the flaw is deemed not to have affected the outcome of the resolutions (Supreme Court of Japan, March 18, 1971 decision). This emphasizes the extremely important role of the board of directors as the ‘gatekeeper’ in the holding of shareholders’ meetings.

Insufficient Notice Period and Omissions in Convocation Notices Under Japanese Corporate Law

The courts’ judgments on defects related to convocation notices vary subtly based on the ‘seriousness’ of the defect and its ‘actual or potential impact’ on the outcome of the resolution.

A case where a notice was sent two days short of the statutory convocation period (12 days before the meeting date) was deemed a ‘serious defect’ that did not allow for discretionary dismissal (Supreme Court of Japan, March 18, 1971 (1971)). This was because the lack of sufficient notice could deprive shareholders of their preparation period and potentially affect the exercise of their voting rights, making it a flaw that cannot be overlooked.

In instances where the omission of convocation notices to some shareholders was significant, such as when no notice was given to 6 out of 9 shareholders (approximately 42% of total shares), and the CEO verbally notified only two shareholders who were relatives, the resolution was deemed a ‘non-existent resolution’ due to a significant defect (Supreme Court of Japan, October 3, 1958 (1958)). This was because the assembly was so poorly convened that it lacked the substance of a ‘shareholders’ meeting’.

On the other hand, there are also cases where the absence of a convocation notice to one of the unit owners (in the case of a condominium management association) did not invalidate the general meeting resolution (Tokyo District Court, November 28, 1988 (1988)). This was because the lack of notice was judged not to affect the general meeting resolution, and the decision took into account the degree of the defect and its impact on the resolution. The courts emphasize not just formal violations but also the substantive impact such violations have on shareholders’ rights and the decision-making process of the assembly. It is essential for managers to accurately manage the mailing list for convocation notices and to ensure strict adherence to the notice period.

Significantly Unfair Shareholder Meeting Procedures and Resolution Methods Under Japanese Corporate Law

The standard of “significantly unfair” is highly dependent on factual determination and reflects the societal expectations of corporate governance in the era. When a shareholders’ meeting is held at a location or time that makes attendance extremely difficult, or if unfair meeting management occurs (such as interference with the exercise of voting rights or conducting proceedings with the cooperation of specific shareholders, for example, employee shareholders), it may be considered a defect that is “significantly unfair.”

As specific examples, cases where a person without voting rights exercised them, or where an agent holding both for and against proxies ignored the opposing proxy and simply cast a vote in favor, the method of resolution was judged to be “significantly unfair” (Osaka High Court, September 26, 1967). Furthermore, an instance where the meeting was declared resolved by applause alone, despite the meeting being in a state of chaos and the chairperson ignoring shareholders’ expressions of no confidence and depriving them of the opportunity for questions and debate, was also deemed “significantly unfair.” These precedents indicate that fundamental manipulation of meeting proceedings and improper handling of voting rights are clearly considered “significantly unfair,” demonstrating a strong demand for the decision-making process of shareholders’ meetings to be conducted fairly. Managers must pay close attention to ensure that all shareholders are treated equitably during the meeting management and that voting rights are exercised appropriately.

On the other hand, the act of a company allowing employee shareholders to enter the shareholders’ meeting venue earlier than other shareholders and to sit in the front was not considered to have infringed upon the legal interests of the shareholders, even if it resulted in shareholders losing the opportunity to sit where they wished, and was not deemed “significantly unfair” (Supreme Court of Japan, November 12, 1996). This suggests that even if there is a sense of formal unfairness, it does not immediately become illegal unless it impedes the substantive exercise of rights. It implies that the courts consider not only formal fairness but also the substantive impact.

Regarding recent case law trends, the Tokyo High Court’s decision on June 5, 2024, found that the company’s “Board of Directors Regulations” were “invalid,” and as a result, there was no flaw in the shareholder meeting convening procedures based on a board meeting convened by a director who was not the president. This indicates that even if there is a formal violation of the regulations, the validity of the regulations themselves may be considered retrospectively. Additionally, cases concerning remote meeting locations and whether or not proxies were enclosed for certain shareholders (sent from a different corporation) were also dismissed, as the convening procedures for the meetings were not found to violate laws or articles of incorporation, nor were the procedures considered “significantly unfair.” This suggests a trend toward allowing companies a certain degree of discretion in meeting management and a potential shift toward more substantive judgments of fairness.

Practical Considerations for Convening Shareholders’ Meetings in Japan

To smoothly operate a company in Japan and maintain good relations with shareholders, it is crucial to understand the Japanese legal system and grasp practical considerations.

Thorough Verification of the Notice of Convocation

Under Japanese Corporate Law (Article 298, Paragraph 1), the details that must be included in the notice of convocation are specified in detail. As a manager, it is extremely important to check the contents of the notice, including the date, location, agenda items, and whether voting rights can be exercised by written or electronic means, and to accurately notify all shareholders. In particular, for private companies, there may be cases where the procedures for convening can be simplified (Japanese Corporate Law, Article 300), so it is necessary to understand your company’s structure and the applicable rules. This is the first step in proactive risk management to prevent potential risks and avoid objections from shareholders.  

Understanding Voting Methods and Appointing Proxies

At shareholders’ meetings in Japan, not only can voting rights be exercised by attending the meeting in person, but in certain cases, voting can also be done by written or electronic ballot (Japanese Corporate Law, Articles 311 and 312). As a manager, you are required to properly prepare these voting methods for shareholder use and provide information so that shareholders can choose the best method for their situation. Additionally, voting through a proxy is possible, but there are restrictions such as a limit on the number of proxies that can attend, due to legal and articles of incorporation provisions, so it is advised to confirm these details in advance and clearly communicate them to shareholders (Japanese Corporate Law, Article 310).  

Conclusion

The legal system concerning the convocation defects at shareholders’ meetings in Japan is intricately designed to balance two crucial aspects: the protection of shareholders’ rights and the stability of corporate management. For companies to gain trust from shareholders, it is essential to ensure the propriety of the procedures for convening shareholders’ meetings and to practice transparent corporate governance.