The Shareholders' Meeting in Japan: Key Points on Authority, Convocation Procedures, and Conduct of Business

The shareholders' meeting, or kabunushi sōkai (株主総会), stands as the paramount decision-making body within a Japanese Kabushiki Kaisha (K.K.), or joint-stock company. It is the primary forum where shareholders exercise their fundamental rights, influencing the company's direction and holding its management accountable. The Japanese Companies Act (Kaisha-hō) meticulously prescribes the authority, convocation procedures, and conduct of business for these meetings, reflecting a balance between protecting shareholder rights and ensuring efficient corporate operations. This article provides a comprehensive overview of these key legal aspects, crucial for anyone involved with or advising Japanese corporations.

The Authority of the Shareholders' Meeting (Kabunushi Sōkai no Kengen)

Under the Companies Act, the shareholders' meeting is a mandatory organ for all K.K.s (Article 295, paragraph 1). Its authority, however, varies significantly depending on whether the company has a board of directors.

Scope of Authority (Article 295)

  1. Companies Without a Board of Directors:
    In a K.K. that does not have a board of directors (typically smaller, non-public companies), the shareholders' meeting has broad authority. It can, in principle, pass resolutions on any and all matters concerning the company, including matters related to business execution (Article 295, paragraph 1). This reflects a model where shareholders may be more directly involved in the company's affairs.
  2. Companies With a Board of Directors:
    For K.K.s that have a board of directors, the authority of the shareholders' meeting is more circumscribed. It can only pass resolutions on:
    • Matters explicitly stipulated in the Companies Act as requiring a shareholders' resolution (e.g., appointment/dismissal of directors and statutory auditors, approval of dividends, amendments to the articles of incorporation, mergers).
    • Matters specifically provided for in the company's articles of incorporation (teikan) as being subject to shareholder resolution (Article 295, paragraph 2).
      The rationale for this limitation is to allow the board of directors to manage the company's business with greater agility and expertise, particularly in larger or public companies where direct shareholder involvement in all decisions would be impractical.
  3. Limits on Expanding Authority via Articles of Incorporation:
    While companies with a board can expand the shareholders' meeting's authority through their articles of incorporation, there are debates about the extent of this flexibility. A key point of discussion has been whether matters typically considered core to the board's function, such as specific decisions on business execution or the appointment and dismissal of the representative director, can be brought back under the shareholders' meeting's direct control.
    A Supreme Court decision on February 21, 2017 (Minshu Vol. 71, No. 2, p. 195) affirmed that, at least for non-public companies with a board, the articles of incorporation can validly grant the shareholders' meeting the power to appoint the representative director. However, the applicability of this to public companies, where director independence and board oversight are emphasized differently, remains a subject of discussion.

Advisory Resolutions (Kangokuteki Ketsugi)

Shareholders' meetings may also pass "advisory resolutions" on matters that are not strictly within their decision-making authority. These resolutions are not legally binding on the board of directors but serve as an expression of shareholder sentiment and can exert significant practical influence on management. An example can be seen in a Tokyo High Court judgment on November 20, 2014 (Hanrei Jihō No. 2266, p. 115), which concerned an advisory resolution endorsing a request for a potential acquirer to cease its acquisition activities.

Convocation of the Shareholders' Meeting (Shōshū Tetsuzuki)

The proper convocation of a shareholders' meeting is critical for the validity of its resolutions. The Companies Act lays down detailed procedures.

Types and Timing of Meetings (Article 296)

  1. Annual General Meeting (Teiji Kabunushi Sōkai): This must be convened at a fixed time after the end of each business year (Article 296, paragraph 1). Key agenda items typically include the approval of annual financial statements, reporting on business operations, and the appointment of directors and auditors whose terms are expiring.
  2. Extraordinary General Meeting (Rinji Kabunushi Sōkai): This can be convened whenever necessary to address specific issues that require shareholder approval (Article 296, paragraph 2).

Decision to Convene (Article 298)

  • Convening Authority: The decision to convene a shareholders' meeting is generally made by the directors. In a company with a board of directors, this decision is made by the board (Article 298, paragraph 4).
  • Matters to be Determined: When deciding to convene a meeting, the following must be determined (Article 298, paragraph 1):
    • The date, time, and place of the meeting.
    • The agenda (matters forming the "purpose" of the meeting). The specificity of the agenda items can be crucial, especially in companies with a board, as resolutions can generally only be passed on matters included in the stated agenda (Article 309, paragraph 5). A Nagoya District Court provisional disposition order on April 25, 2013 (Hanrei Jihō No. 2216, p. 119) indicated that if the purpose is to dismiss a director, the name of the director should be specified.
    • Whether voting by written ballot or electronic means will be permitted, and if so, related procedural details. Companies with 1,000 or more voting shareholders are generally required to permit voting by written ballot (Article 298, paragraph 2).
    • Other matters prescribed by Ministry of Justice Ordinance (e.g., summaries of proposals if already formulated).

Notice of Convocation (Article 299)

Once the decision to convene is made, notice must be sent to the shareholders.

  • Dispatch by Directors: The notice is typically dispatched by the directors (Article 296, paragraph 3).
  • Timing of Notice: As a general rule, for companies with a board of directors (or public companies), notice must be dispatched at least two weeks prior to the meeting date (Article 299, paragraph 1).
    • For non-public companies that do not have a board of directors and do not allow voting by written or electronic means, this period is generally shortened to one week. The articles of incorporation can further shorten this period for such companies.
    • If the company adopts "Electronic Provision Measures" for meeting materials (a system introduced by a recent amendment, effective from a date to be set by cabinet order by June 11, 2024), the notice period may also be affected.
  • Method of Notice:
    • For companies with a board of directors, or when voting by written or electronic means is permitted, the notice must be in writing (Article 299, paragraph 2), unless the shareholder consents to receiving it by electronic means (e.g., email) (Article 299, paragraph 3).
    • For other companies (non-public companies without a board, not using written/electronic voting), the method of notice is not specifically prescribed by law, allowing for oral or telephone notice.
  • Content of Notice: If written notice is required, it must include the matters determined at the convocation decision stage (Article 299, paragraph 4). If written/electronic voting is used, reference documents for the shareholders' meeting and voting forms must also be provided (Articles 301, 302).

Omission of Convocation Procedures / Meetings with Unanimous Attendance

  • Omission of Notice with Unanimous Shareholder Consent (Article 300): If voting by written or electronic means is not implemented, the formal convocation notice procedure can be omitted if all shareholders entitled to vote consent to it beforehand.
  • Meetings with Unanimous Attendance (Zen-in Shusseki Sōkai): Japanese case law has established that even if there are defects in the convocation decision or notice, resolutions passed at a meeting where all shareholders attend (or are validly represented) and raise no objection to the procedural flaws are generally considered valid (Supreme Court judgment, December 20, 1985, Minshu Vol. 39, No. 8, p. 1869). This is based on the idea that the purpose of convocation procedures—to provide shareholders an opportunity to attend and prepare—is satisfied if all shareholders are present and consent. There is ongoing discussion, however, about the validity of such meetings if directors or statutory auditors are deliberately excluded.

Withdrawal or Postponement of Meetings

Although not explicitly detailed in the Companies Act, it is generally understood that a decision to convene a shareholders' meeting can be withdrawn, or the meeting postponed, by the convening authority before it is held. If so, notice of such withdrawal or postponement should be given to shareholders. If a meeting is formally opened and then adjourned to a later date (enkai) or continued on a subsequent day (keizoku), further formal convocation procedures are generally not required for the reconvened session (Article 317).

Shareholder Involvement in the Convocation Process

The Companies Act provides shareholders with means to actively participate in initiating and shaping the agenda of shareholders' meetings.

Shareholder's Right to Demand Convocation (Article 297)

Shareholders holding 3% or more of the total voting rights (or a lesser percentage if so provided in the articles of incorporation) for a continuous period of six months or more (this holding period requirement does not apply to non-public companies) can demand that the directors convene a shareholders' meeting. The demand must specify the proposed agenda and the reasons for convocation (Article 297, paragraph 1). If the directors fail to convene the meeting without delay, or if notice is not dispatched for a meeting to be held within eight weeks of the demand, the demanding shareholders may, with court permission, convene the meeting themselves (Article 297, paragraph 4).

Shareholder Proposal Rights (Kabunushi Teian-ken)

Shareholders also have rights to influence the agenda and proposals at meetings convened by the company:

  1. Right to Propose Agenda Items (Gidai Teian-ken) (Article 303):
    Shareholders meeting certain criteria can request the directors to include specific matters as agenda items for an upcoming shareholders' meeting.
    • In companies without a board of directors, any shareholder entitled to vote can make such a proposal, even at the meeting itself (Article 303, paragraph 1).
    • In companies with a board of directors, this right is generally limited to shareholders holding 1% or more of the voting rights (or 300 or more voting rights) for at least six months (the six-month holding period is not required for non-public companies). Such proposals must typically be submitted at least eight weeks before the meeting date (Article 303, paragraph 2).
  2. Right to Propose Motions (Gian Teian-ken) (Article 304):
    Any shareholder can submit specific motions concerning matters that are already on the agenda of the shareholders' meeting. This right can be exercised at the meeting itself. However, proposals that are illegal, violate the articles of incorporation, or are substantially the same as a proposal that failed to gain at least 10% support within the last three years can be rejected (Article 304, proviso).
  3. Right to Demand Notification of Proposal Summaries (Gian Yōryō Tsūchi Seikyū-ken) (Article 305):
    Shareholders entitled to propose agenda items can also demand that the company include a summary of their proposed motions in the convocation notice sent to other shareholders. This helps the proposing shareholder to garner support in advance. The eligibility requirements (shareholding, timing) are similar to those for proposing agenda items in companies with a board. A recent amendment to the Companies Act (effective from a date to be set by cabinet order by June 11, 2024) introduced a limit on the number of proposals for which such notification can be demanded (generally ten, with specific counting rules for certain types of proposals like director elections or multiple related amendments to the articles of incorporation), aiming to curb abusive mass proposals.

Conduct of Business at the Shareholders' Meeting (Giji Tetsuzuki)

Once convened, the meeting proceeds according to established rules, partly statutory and partly based on general principles of meeting practice.

Presiding Officer (Chairperson - Gichō) (Article 315)

  • Selection: The Companies Act does not specify how the chairperson is selected. Often, the articles of incorporation designate the Representative Director as chairperson. In the absence of such a provision, the chairperson would typically be elected by the attendees.
  • Authority: The chairperson has the authority to maintain order and manage the proceedings of the meeting (Article 315, paragraph 1). This includes directing the agenda, recognizing speakers, calling for votes, and, if necessary, ordering the removal of disruptive individuals (Article 315, paragraph 2). Arbitrary exercise of these powers can lead to challenges to the validity of resolutions. Courts have emphasized that shareholders should generally be treated equally regarding participation, such as seating arrangements and the opportunity to speak (e.g., Supreme Court judgment, November 12, 1996, Hanrei Jihō No. 1598, p. 152).

Directors' Duty to Explain (Article 314)

Directors, statutory auditors, and accounting advisors have a duty to provide necessary explanations in response to specific questions from shareholders at the meeting concerning matters on the agenda (Article 314, main clause). This duty is crucial for informed shareholder decision-making.

  • Grounds for Refusal: Explanations can be refused if the question is not relevant to the agenda, if explaining would significantly harm the common interests of shareholders (e.g., by disclosing trade secrets), if investigation is required (unless the question was submitted well in advance), if it would infringe the rights of the company or third parties, if the question is repetitive, or for other justifiable reasons (Article 314, proviso; Companies Act Enforcement Rules, Article 71).
  • Sufficiency of Explanation: The "necessary explanation" is generally judged by whether an average shareholder would have sufficient information to make a reasonable judgment on the agenda item (Tokyo District Court judgment, May 13, 2004, Kin-yu Homu Jijo No. 1198, p. 18).

Voting Rights (Giketsuken) (Article 308)

  • Allocation: The fundamental principle is "one share, one vote" (Article 308, paragraph 1). For companies with a unit share system (tangen-kabu seido), it's one vote per unit of shares.
  • Restrictions on Voting Rights: Voting rights can be restricted for certain shares, such as:
    • Shares less than one unit (tangen-miman kabushiki).
    • Treasury shares held by the company itself (Article 308, paragraph 2).
    • Shares held by a substantially controlled subsidiary in its parent company (cross-shareholding rules).
    • Shares specifically designated as non-voting shares or shares with limited voting rights (a type of class share).
    • Shares held by a shareholder with a "special interest" in a particular resolution (though this is a ground for challenging the resolution's fairness rather than an outright voting prohibition in most cases, except for specific self-dealing approvals by the board).
  • Proxy Voting (Article 310): Shareholders can exercise their voting rights through a proxy. A written power of attorney must generally be submitted. Companies can, through their articles of incorporation, restrict the qualifications of proxies (e.g., to other shareholders), but courts have scrutinized such restrictions for reasonableness, particularly when they prevent representation by lawyers or other suitable agents (e.g., Supreme Court judgment, November 1, 1968, Minshu Vol. 22, No. 12, p. 2402; Supreme Court judgment, December 24, 1976, Minshu Vol. 30, No. 11, p. 1076). The effect of a proxy voting against the shareholder's instructions is a complex issue, often turning on whether the company was aware of the breach of instruction (Tokyo High Court judgment, October 17, 2019, Kin-yu Homu Jijo No. 1582, p. 30).
  • Non-Uniform Exercise of Voting Rights (Article 313): A shareholder holding multiple voting rights can cast some votes in favor of a proposal and others against it, provided they notify the company in advance and, if they are not holding shares for others, the company does not object.
  • Voting by Written Ballot or Electronic Means (Articles 311, 312): If permitted or required, shareholders can vote without attending the meeting by submitting a written ballot or by electronic means by a specified deadline.

Passing Resolutions (Ketsugi Yōken) (Article 309)

For a proposal to be approved as a resolution, it must meet specific quorum and majority voting requirements, which vary depending on the importance of the matter. Votes cast by written ballot or electronic means are included in calculating attendance and votes.

  1. Ordinary Resolutions (Article 309, paragraph 1):
    • Quorum: Generally, shareholders holding a majority of the voting rights that can be exercised at the meeting must be present (this can be eliminated or modified by the articles of incorporation, unless otherwise specified for particular resolutions).
    • Majority: Approval by a majority of the voting rights present.
  2. Special Resolutions (Article 309, paragraph 2): Required for more significant matters (e.g., amending the articles of incorporation, approving mergers, dismissing directors).
    • Quorum: Shareholders holding a majority of the voting rights that can be exercised must be present (this can be reduced by the articles of incorporation, but not below one-third).
    • Majority: Approval by at least two-thirds of the voting rights present (this can be increased by the articles of incorporation).
  3. "Special-er" Resolutions (Article 309, paragraphs 3 and 4): For exceptionally critical matters affecting fundamental shareholder rights (e.g., making all shares transfer-restricted, or establishing provisions for differential treatment of shareholders not based on class shares in a non-public company). These require even higher thresholds, often involving a majority of shareholders by headcount in addition to specific supermajorities of voting rights of all shareholders.
  4. "Modified Ordinary Resolutions" (e.g., Article 341 for director election/dismissal): The quorum can be lowered by the articles, but not below one-third (similar to special resolutions), while the approval threshold remains a majority of votes present (similar to ordinary resolutions).

The principle of "capital majority" (shihon tasūketsu) generally applies, meaning decisions are made based on the number of voting rights, not the number of shareholders.

Minutes of Shareholders' Meetings (Article 318)

The company must prepare minutes of its shareholders' meetings in accordance with Ministry of Justice Ordinances. These minutes must be kept at the head office for ten years (and copies at branches for five years) and made available for inspection and copying by shareholders and creditors (and parent company shareholders with court permission). Documents related to proxy voting and written/electronic voting must also be preserved for a shorter period.

Defects in Shareholders' Meeting Resolutions (Ketsugi no Kashi)

If the convocation procedures or the method of passing a resolution are flawed, or if the content of a resolution is illegal, the validity of the resolution can be challenged. The Companies Act provides a tiered system for addressing such defects:

  1. Action for Rescission of a Resolution (Ketsugi Torikeshi no Uttae) (Article 831):
    This is the most common type of challenge, applicable to a range of defects.
    • Grounds:
      • Violations of laws or the articles of incorporation in convocation procedures or the method of resolution, or if either is grossly unfair (e.g., insufficient notice, improper handling of votes, denial of explanation duty).
      • Content of the resolution violates the articles of incorporation.
      • A resolution with grossly improper content is passed due to the exercise of voting rights by a shareholder with a special interest in that resolution.
    • Procedural Aspects: Must be filed within three months of the resolution date by specified parties (shareholders, directors, etc.). The defendant is the company. The court has discretion to dismiss the action even if a defect exists, if the defect is trivial and does not affect the outcome of the resolution (discretionary dismissal - sairyō kikyaku). A judgment rescinding a resolution has effect against all parties (taiseikō) and is generally retroactive.
  2. Action for Declaration of Non-Existence of a Resolution (Ketsugi Fusonzai Kakunin no Uttae) (Article 830, paragraph 1):
    This action applies when the flaws in the process are so severe that, legally, no resolution can be said to have come into existence at all. This includes "physical non-existence" (no meeting was actually held) or "legal non-existence" (e.g., a meeting convened by someone with no authority, or where a vast majority of shareholders were excluded). There is no time limit for filing this action, and any interested party can file.
  3. Action for Declaration of Nullity of a Resolution (Ketsugi Mukō Kakunin no Uttae) (Article 830, paragraph 2):
    This action is appropriate when the content of the resolution violates mandatory provisions of law (e.g., a resolution to engage in an illegal act). Such a resolution is considered void ab initio. Again, there is no time limit, and any interested party can file.

Judgments confirming non-existence or nullity also have effect against all parties. The interplay between these actions, especially the distinction between voidable (rescindable) and non-existent resolutions, can be complex, particularly when procedural flaws are egregious.

Conclusion

The shareholders' meeting is the linchpin of corporate democracy and shareholder rights within a Japanese Kabushiki Kaisha. The Companies Act provides a detailed, and at times complex, set of rules governing its authority, convocation, conduct, and the validity of its resolutions. These rules aim to balance the need for efficient corporate decision-making with the imperative to protect shareholder interests and ensure procedural fairness. For businesses operating in Japan, or those investing in or advising Japanese companies, a solid understanding of these shareholder meeting mechanics is fundamental to effective governance, risk management, and dispute prevention.