Authority and Convocation Procedures for General Meetings of Shareholders

Authority of the General Meeting of Shareholders (Matters to be Resolved)

What matters may be discussed and resolved at a general shareholders’ meeting differs between companies with a board of directors and companies without a board of directors. For companies without a board of directors, shareholders’ meeting is authorized to make resolutions on the organization, operation, and management of the company and any other matters related to the company (Article 295, Paragraph 1 of the Companies Act). Whether or not a company has a board of directors is not determined by whether or not meetings of the board of directors are actually held, but by whether or not the articles of incorporation stipulate that the company is a company without a board of directors. A company without a board of directors would be a company such as an old limited liability company, where only one director is appointed.

Schedule of General Meetings of Shareholders

There are two types of shareholders’ meetings: ordinary shareholders’ meetings and extraordinary shareholders’ meetings. An ordinary general meeting of shareholders must be convened within three months after the end of each fiscal year (Article 296, Paragraph 1 of the Companies Act). For example, a company closing its books at the end of December is required to hold an annual shareholders’ meeting by the end of March, while a company closing its books at the end of March is required to hold an annual shareholders’ meeting by the end of June. In Japan, since many companies close their books at the end of March, annual general shareholders’ meetings tend to be held at the end of June. The day on which the largest concentration of annual general shareholders’ meetings is held is sometimes referred to as the “concentration day”. If all companies hold their general meetings on the same day, shareholders holding multiple shares will only be able to attend a limited number of meetings. Therefore, there is a recent trend to avoid the concentration date as much as possible and to hold the AGM on a different date. However, listed companies are subject to many procedures after the closing date, such as preparation of financial statements, audits, etc., so even if the meeting were to be moved up, the schedule would be quite limited. Unlike an ordinary general meeting of shareholders, an extraordinary general meeting of shareholders can be held at any time. However, holding an extraordinary general shareholders’ meeting requires various procedures, such as sending a notice of convocation to shareholders, so holding an extraordinary general shareholders’ meeting imposes a heavy procedural burden. Therefore, an extraordinary shareholders’ meeting can be held only in limited cases, such as when it is absolutely  necessary to elect new directors in the middle of a fiscal year, or when a company undergoes a reorganization procedure such as a merger.

Resolution to Convene a General Meeting of Shareholders

The general meeting of shareholders shall be convened by the directors” (Article 296, Paragraph 3 of the Companies Act). It does not mean that any director can convene a meeting on his/her own, but only a director with the authority to represent the company must do so. The identity of the representative director is clearly stated in the certified copy of the commercial register in ordinary cases, but in cases where a resolution is passed to dismiss the representative director, there may be disputes over the validity of the resolution, so there may be cases where there is a dispute over who is authorized to convene the general meeting. A general meeting held by a director (representative director) who does not have the authority to convene a general meeting is invalid, which means that all matters resolved at a general meeting of shareholders, including the agenda for the election of directors, will be denied their validity.

Convocation of a General Meeting of Shareholders by Minority Shareholders

Shareholders who have held 3% or more of the total number of shares issued and outstanding for the past six months or longer may request the representative director to convene a general meeting, indicating the matters that are the purpose of the meeting (e.g., a proposal for the election of directors). If the company fails to convene a general meeting without delay, or if a notice to convene a general meeting is not received within 8 weeks from the date of the request, the company may hold the meeting by itself with the permission of the court (Article 297, Paragraphs 1 and 4 of the Companies Act). Since the Companies Act states “with the permission of the court,” a shareholder who has requested to hold a general meeting is required to file a petition to the court for a decision on permission to convene a general meeting. In cases where there is a dispute over control, petitions for a decision on permission to convene a general meeting are often filed, and our firm has handled many such cases.

Resolution to convene a general meeting of shareholders

When a general meeting of shareholders is to be held, the following matters must be set forth: (1) the date, time, and place of the meeting; (2) the matters to be discussed at the meeting (agenda to be submitted to the meeting); (3) if voting rights may be exercised in writing, a statement to that effect; and (4) if voting rights may be exercised via electromagnetic means (Internet), a statement to that effect (Companies Act (Article 298, Paragraph 1 of the Companies Act). For companies with a board of directors (which most companies are), these decisions must be made by the board of directors. Therefore, although the representative director is responsible for the actual convocation procedure, a resolution of the board of directors is required for the agenda of the shareholders’ meeting, etc. If a resolution of the board of directors cannot be adopted, such as when the board of directors is divided into groups with the same number of directors and is in conflict with each other, it will not be possible to convene a shareholders’ meeting either.

Dispatch of Notice of Convocation of General Meeting of Shareholders

When convening a general meeting of shareholders, the representative director is required to send a notice of the meeting to the shareholders at least two weeks prior to the meeting. However, for a company with restricted stock transfer (private company), it is sufficient to send the convocation notice at least one week prior to the date of the general meeting. The convocation notice must include the date, time, place, and agenda of the shareholders’ meeting.

Omission of procedures for convening a general meeting

With the consent of all shareholders, the procedure for convening a general meeting (i.e., resolution by the board of directors to convene a general meeting and dispatch of a notice of meeting) can be omitted. For companies with a limited number of shareholders, it is often possible to omit the procedures for convening a general meeting with the consent of all shareholders. If the procedure for convening a general meeting of shareholders is omitted, a statement to that effect must be included in the minutes of the meeting.

Delivery of Reference Documents and Voting Documents for the General Meeting of Shareholders

If a company permits the exercise of voting rights in writing, the company is required to send a document stating matters that should serve as a reference for the exercise of voting rights (Reference Document for General Meeting of Shareholders) and a voting form. In the case of listed companies, most companies enclose the reference documents for the general meeting of shareholders and the voting form with the notice of convocation, as voting by the voting form is considered to be permitted in many cases. In contrast, in the case of many small and medium-sized companies, even if a voting form has been sent, the reference documents may not be attached. Please note that the reference documents for the voting form are detailed explanations of the contents of the proposals. In the case of a proposal for the election of directors, the reference documents include biographical sketches of the directors and the reasons for electing them.

Right to propose an agenda by shareholders

Shareholders who have held at least 1/100th (1%) of the total number of outstanding shares or 300 voting rights for at least six months are entitled to request that certain events be the subject of a general meeting of shareholders. For companies whose shares are restricted for transfer (companies that are not publicly traded companies), there is no requirement that they have held the shares for more than six months. Article 303 of the Companies Act relates to the proposal of an agenda. An agenda item is an item such as “election of directors” or “amendment to the articles of incorporation”.

Right to propose an agenda by shareholders

Shareholders are entitled to submit proposals on matters that are the purpose of a general meeting of shareholders (Article 304 of the Companies Act). This right, known as the right to propose an agenda item, is submitted as an amendment motion at the general meeting of shareholders. Unlike the right to propose an agenda item, there is no requirement that a shareholder must hold 1% or more of the company’s shares, and any shareholder may exercise this right. However, it may not be exercised if the proposal violates laws, regulations, or the Articles of Incorporation, or if three years have not passed since the date on which the same proposal failed to obtain the approval of one-tenth or more of the voting rights of all shareholders at a general shareholders’ meeting. In practice, the most common situation is when a minority shareholder submits another proposal for the election of directors when the company has already proposed the election of directors. If the right to make a proposal by a shareholder is legally exercised, the chairman of the meeting is required to submit the proposal to the shareholders’ meeting, and failure to do so constitutes grounds for cancellation of the meeting. However, if the chairman puts both the company’s proposal and the shareholder’s proposal on the agenda and the company’s proposal is approved first, it is possible to assume that the shareholder’s proposal that conflicts with the company’s proposal was rejected.

Right to request notice of agenda

Shareholders are entitled to demand that the directors notify shareholders of the outline of a proposal that the shareholder intends to submit with respect to a matter that is the subject of a general meeting of shareholders at least eight weeks prior to the meeting. With respect to the right to demand that shareholders be notified of the agenda proposed by the shareholder (right to demand notification of the agenda), in a company without restrictions on the transfer of shares, the shareholder must have continuously held voting rights representing at least 1/100th of the voting rights of all shareholders or 300 voting rights or more for six months prior to the meeting. For companies with restrictions on the transfer of shares, the six-month time limit is not required. For companies without a board of directors, the shareholding requirement is also not required.