The principle of "one share, one vote" is a fundamental concept in corporate governance globally, signifying that a shareholder's voting power is directly proportional to their equity stake. For US companies and legal professionals engaging with Japan, understanding how this principle operates under Japanese company law is vital. While the core idea resonates with Western systems, Japan's approach incorporates specific mechanisms and exceptions that can significantly impact corporate control and shareholder influence.

The Core Principle: Equality and Capital Majority

Under Japan's Companies Act (Article 308, Paragraph 1), the default rule is clear: each share carries one vote at a shareholders' meeting. This principle is a cornerstone of shareholder equality, ensuring that the rights attached to shares are, in principle, uniform. It also underpins the concept of "capital majority," where decisions at shareholders' meetings are made based on the majority of voting rights represented, rather than a simple majority of the shareholders present. This aligns with the notion that those with a greater economic stake should have a correspondingly greater say in the company's governance.

The rationale for this principle extends beyond mere fairness. It facilitates the transferability and marketability of shares by creating standardized units of ownership. Each share represents the smallest indivisible unit of shareholder status and the bundle of rights associated with it, including the right to vote.

In the US, "one share, one vote" is also a foundational ideal, though the landscape has seen more prominent use and debate around exceptions like dual-class share structures, particularly in the technology sector, allowing founders to retain control despite diluting their economic ownership. Japan, while allowing for deviations, has historically shown a more cautious and regulated approach to such exceptions.

Why Shareholders Vote: The Residual Claimant Theory in a Japanese Context

A dominant theory explaining why shareholders exclusively hold voting rights is that they are the "residual claimants" of the corporation. This means that after all other claims on the company's assets and profits (by creditors, employees, suppliers, etc.) have been met, shareholders are entitled to whatever remains. Consequently, shareholders are seen as having the strongest incentive to ensure the company maximizes its overall value, as this directly translates to maximizing their residual interest. The theory posits that pursuing this shareholder-centric goal ultimately benefits all stakeholders and society by promoting efficient resource allocation.

While this theory provides a powerful economic argument, its direct application in Japan has to be viewed through the lens of Japan's traditional corporate culture, which often appeared more stakeholder-oriented. Practices like long-term employment and strong inter-company relationships within keiretsu (corporate groups) sometimes suggested a broader set_of priorities than immediate shareholder return. However, as discussed in the context of shareholder primacy, Japan's corporate governance has been evolving. The push for improved "earning power" and the adoption of codes emphasizing dialogue with shareholders and medium-to-long-term corporate value indicate a growing alignment with the idea that robust shareholder engagement and value creation are key, even if achieved through a more "enlightened" or stakeholder-inclusive approach. The "one share, one vote" principle serves as the basic mechanism through which these engaged shareholders are intended to exercise their influence.

Key Exceptions to "One Share, One Vote" in Japanese Company Law

Despite the fundamental nature of the principle, Japanese company law provides for several important exceptions and modifications:

1. The Unit Share System (単元株制度 - Tangenkabu Seido)
   A significant feature of Japanese company law is the "unit share system" (Companies Act, Article 188). Companies can, through their articles of incorporation, stipulate that a certain number of shares constitute one "unit," and voting rights are then exercised on a per-unit basis, not per-share. For instance, if a company sets one unit at 100 shares, a shareholder with 150 shares would have one voting unit (and thus one vote for most matters), while the remaining 50 shares (less than a full unit) would be "less-than-unit shares" (単元未満株式 - tangen miman kabushiki) and typically carry no voting rights for ordinary shareholder meeting resolutions.The primary stated purpose of this system is to reduce the administrative burden and costs associated with managing a large number of very small shareholders (e.g., printing and mailing notices). However, it can also impact minority shareholder influence, as those holding fewer than the unit number of shares are effectively disenfranchised from voting at general meetings, though they retain other shareholder rights like the right to dividends. Companies can, however, allow holders of less-than-unit shares to request the company to buy back their shares or to sell them additional shares to make up a full unit.
2. Class Shares with Varied Voting Rights (種類株式 - Shurui Kabushiki)
   The Companies Act allows for the issuance of different classes of shares with varying rights, including shares with restricted or no voting rights on certain or all matters (Article 108).These class shares provide flexibility for corporate structuring and financing but also represent a clear deviation from the strict "one share, one vote" principle. Their creation and the rights attached must be stipulated in the articles of incorporation.
   • Non-Voting Shares: Companies can issue shares that have no voting rights at general shareholders' meetings. However, there's a cap: the number of such shares cannot exceed one-half of the total number of issued shares (Article 115). This limitation is in place to prevent the complete separation of voting control from economic ownership on a massive scale.
   • Shares with Restricted Voting Rights: It's possible to create shares that can vote on certain matters but not others, or shares that have voting rights only under specific conditions.
   • Shares with Veto Rights (Golden Shares): A company can issue a class of shares (often just one share) that requires the approval of that class for certain important resolutions, effectively giving the holder(s) of that class a veto power.
   • Shares with the Right to Elect Directors/Auditors: A company can issue a class of shares whose holders have the exclusive right to elect a certain number of directors or corporate auditors (Article 108(1)(ix)). In such cases, other classes of shares might not have voting rights concerning the election of these particular board members.
3. Treasury Stock (自己株式 - Jiko Kabushiki)
   Shares repurchased and held by the issuing company itself (treasury stock) do not carry voting rights (Companies Act, Article 308, Paragraph 2). This is a standard provision internationally, as allowing a company to vote its own shares would create conflicts of interest and could be used by management to entrench itself.
4. Cross-Shareholdings (株式持ち合い - Kabushiki Mochiai)
   While Japan has been working to unwind extensive cross-shareholdings, where companies hold shares in each other for business relationship purposes, there are provisions that can restrict the voting rights of shares held under certain reciprocal conditions. If one company holds a quarter or more of the voting rights of another company, the latter company generally cannot exercise voting rights in the former (Companies Act, Article 308, Paragraph 1 proviso). This rule aims to prevent artificial inflation of voting power and potential abuses in companies with significant mutual holdings.
5. Other Statutory Limitations:
   • Record Date: Only shareholders registered as of a specific record date are entitled to vote at an upcoming meeting (Article 124, Paragraph 1). Those acquiring shares after this date generally cannot vote, unless the company specifically permits it.
   • Shares Subject to Company Buy-Back Approval: When a shareholder's shares are the subject of a resolution by which the company proposes to acquire those specific shares from that shareholder, that particular shareholder typically cannot vote on that resolution (e.g., Article 140, Paragraph 3).
   • Share Certificate Loss Registration: If a share certificate (for companies that issue them) has been officially registered as lost by someone other than the actual shareholder, the voting rights of those shares may be suspended (Article 230, Paragraph 3).

The "Dual-Class Share" Phenomenon: A Cautious Approach in Japan

In the US, dual-class share structures, where different classes of shares carry different voting rights (e.g., "founder shares" with multiple votes per share versus common stock with one vote per share), have been a prominent feature, especially for technology companies going public. This allows founders and insiders to retain significant voting control even with a minority economic stake.

Japan has been much more cautious in this regard. While the unit share system can, in effect, create differential voting power if different classes have dramatically different unit numbers (e.g., one class requiring 1 share for a unit/vote, another requiring 1,000 shares), the explicit creation of shares with multiple votes per share is not a common feature of the Japanese market.

The Tokyo Stock Exchange (TSE) has listed at least one company with a structure involving shares with lesser voting rights (often cited as Cyberdyne Inc., which issues Class A shares with voting rights and Class C shares without voting rights on most matters, with Class C shares being listed). However, the TSE maintains stringent guidelines for listing companies with such weighted voting structures. These guidelines typically require:

• A strong justification for the necessity of such a structure, often linked to the unique capabilities or vision of specific individuals (like founders) deemed essential for the company's long-term business plan and value creation.
• Safeguards for other shareholders, such as "sunset clauses" (where the differential voting rights expire after a certain period or upon a triggering event, like the founder leaving the company or their stake falling below a certain threshold) and "breakthrough clauses" (allowing the structure to be dismantled if a third party acquires a very high percentage of shares).
• Restrictions on the transferability of the super-voting shares to prevent control from passing to unintended parties.

This cautious stance reflects a general preference in Japan for maintaining a closer alignment between economic interest and voting power, and a concern that widespread adoption of dual-class structures could undermine shareholder equality and corporate accountability.

Protecting Minority Shareholders

The "one share, one vote" principle, operating under a capital majority system, inherently means that shareholders with larger stakes have more influence. To balance this and protect the interests of minority shareholders, Japanese company law incorporates several safeguards:

• Supermajority Voting Requirements: Certain critical corporate actions require more than a simple majority of votes. For example, amendments to the articles of incorporation, mergers, significant asset sales, or reductions in stated capital typically require a special resolution, which usually necessitates a two-thirds majority of the votes cast by shareholders present at a meeting where shareholders holding a majority of the total voting rights are represented (Companies Act, Article 309, Paragraph 2). Some matters require even stricter approval.
• Appraisal Rights (Share Buy-Back Requests): Shareholders who dissent from certain major corporate decisions (e.g., mergers, certain business transfers, or significant amendments to the articles of incorporation that restrict share transferability) have the right to demand that the company purchase their shares at a fair price (e.g., Articles 469, 785, 797, 116).
• Right to Challenge Unfair Resolutions: Shareholders can file a lawsuit to seek the cancellation of a shareholder meeting resolution if the resolution process was flawed, the resolution's content is contrary to the articles of incorporation, or if a resolution is grossly unfair and passed due to the influence of a shareholder with a special interest (Article 831).
• Derivative Lawsuits: While not directly related to voting, the right of shareholders to bring derivative lawsuits on behalf of the company against directors for breach of duty also serves as a check on potential abuses by majority-influenced management.

The practical effectiveness of these protections can vary, but they represent important legal avenues for minority shareholders to voice concerns and seek redress.

Implications for US Businesses and Investors

For US companies considering investments, joint ventures, or other engagements in Japan, a thorough understanding of these voting principles and their exceptions is critical:

• Due Diligence on Share Structure: Before investing, examine the target company's articles of incorporation and shareholder register to understand its share structure, including the existence of any unit share system settings, different classes of shares, and their respective voting rights. This is crucial for accurately assessing potential voting power and influence.
• Impact of Unit Shares: The unit share system can significantly affect the voting power of smaller shareholdings. Understand the tangenkabu number and how it might impact your ability to vote or influence decisions if you hold less than a full unit or a relatively small number of units.
• Class Shares and Control: If a company has issued various classes of shares, identify any with special voting rights, veto powers, or rights to elect directors, as these can materially alter the governance dynamics.
• Negotiating Shareholder Agreements: In joint ventures or private equity investments, shareholder agreements can be used to define voting arrangements, board representation, and minority protection rights, potentially supplementing the statutory framework. However, these agreements must operate within the bounds of the Companies Act.
• Understanding Governance Culture: Beyond the legal rules, be aware of the Japanese emphasis on consensus-building and informal communication. Major decisions are often thoroughly discussed and pre-aligned before formal votes at shareholder meetings, especially in more traditional companies.

Conclusion: A Balanced Approach with Nuances

Japan upholds the "one share, one vote" principle as a fundamental tenet of its company law, promoting shareholder equality and a capital-based decision-making process. However, the system is not rigid. It incorporates a range of legally defined exceptions and mechanisms, such as the unit share system and the ability to issue class shares with varied rights. These tools offer flexibility but also necessitate careful scrutiny by investors and business partners to understand their precise impact on voting power and corporate governance.

While Japan has not embraced differential voting rights to the same extent as seen in some US contexts (e.g., widespread dual-class shares for founder control), the ongoing evolution of its corporate governance framework, including the influence of global institutional investors and codes like the Stewardship Code, means that the effective exercise of voting rights and the dialogue between companies and shareholders remain central to enhancing corporate value. For US entities, navigating this landscape requires not only an understanding of the black-letter law but also an appreciation for the practical realities and cultural nuances of Japanese corporate governance.