A case in which a shareholder held a shareholders’ meeting by himself after petitioning for permission to convene a shareholders’ meeting

Outline of the case

When a dispute over control of a company arises in a family enterprise, for example, the representative director may not hold a majority of shares. In such a case, the representative director may be dismissed at the general meeting of shareholders. Therefore, the representative director may not hold the shareholders’ meeting even though the date of the annual shareholders’ meeting has passed. In such a case, as a shareholder, you may request the company to hold a general meeting, and if the company does not hold a general meeting, you may hold a general meeting by yourself after obtaining a decision by the court.

Persons authorized to convene a general meeting of shareholders

In principle, a general meeting of shareholders is convened by a director (Article 296, Paragraph 3 of the Companies Act). Although there is some debate as to whether the “directors” referred to in Article 296, Paragraph 3 of the Companies Act are limited to representative directors or whether other directors may also convene a meeting, it is generally interpreted that a representative director must convene the meeting, and a shareholders’ meeting convened by a director without representative authority is considered invalid.

Shareholder’s request to convene a general meeting

As mentioned above, in principle, a general meeting of shareholders is convened by the representative director of the company, but the Companies Act provides that minority shareholders may also request the directors to convene a general meeting of shareholders (Article 297, Paragraphs 1 and 2 of the Companies Act).

Requirements for a shareholder’s request to convene a general meeting of shareholders

The requirements for minority shareholders to request a meeting of shareholders differ between public companies (companies without restrictions on the transfer of shares) and private companies (companies with restrictions on the transfer of shares). In the case of a public company (a company without restrictions on the transfer of shares), shareholders who have held the voting rights of 3% or more of the total voting rights of all shareholders for six months prior to the meeting may request a meeting of shareholders to be convened. In contrast, in the case of a non-public company (a company with restrictions on the transfer of shares), shareholders holding 3% or more of the voting rights of all shareholders may demand that a general meeting of shareholders be convened (there is no requirement that the meeting be held six months in advance). In the case of a public company (a company without restrictions on the transfer of shares), the six-month holding period requirement is necessary to eliminate the possibility of minority shareholders acquiring shares solely for the purpose of abusing their rights, but in the case of a private company (a company with restrictions on the transfer of shares), shareholders cannot acquire shares without the approval of the board of directors. In the case of a privately held company (a company with restricted stock transfer), shareholders cannot acquire shares without the approval of the board of directors, so it is considered that no one would originally acquire shares for the purpose of abusive exercise of minority shareholder rights, and the 6-month holding period requirement is not attached.

Method of shareholder’s request for convocation of a general meeting of shareholders

A shareholder who requests the convocation of a general meeting of shareholders must make a request to the directors to convene a general meeting of shareholders, indicating the matters that are the purpose of the meeting and the reasons for convening the meeting (Article 297, Paragraph 1 of the Companies Act). Matters for which a general meeting of shareholders is to be held include “the dismissal of a director,” “the election of a director,” and “an amendment to the articles of incorporation”. It must be indicated what agenda item is to be discussed at the meeting. As for the “Reason for convening the meeting,” it must be stated that the meeting is necessary to deliberate on the agenda item, for example, “Director XX has committed an illegal act”. Under the Companies Act, the person to whom a request for a general meeting of shareholders should be addressed is a “director,” but there are differences of opinion as to whether this is limited to a representative director or includes a common director. A request to convene a general meeting of shareholders is a request to the company to convene a general meeting of shareholders and does not mean that the minority shareholders can immediately convene the meeting themselves.

Petition for permission to convene a general meeting of shareholders

If, despite a shareholder’s request to convene a general meeting of shareholders, (i) the procedures for convening a general meeting of shareholders are not completed without delay after the request is made, or (ii) a notice of convocation of a general meeting of shareholders is not issued with a date within eight weeks of the date of the request, the shareholder who requested the convocation of the general meeting may, with the permission of the court (Article 297, Paragraph 4)convene shareholder’s meeting by themselves. Thus, a petition by a shareholder to the court for permission to convene a general meeting can only be filed if the shareholder first requests the company to convene a general meeting and the company fails to hold the meeting in response.

Date of hearing

When a shareholder submits a petition for permission to call a shareholders’ meeting to the court, a date about one to two weeks after the petition is filed is designated as the date for a hearing. Interrogation means that the court will hear opinions from the parties concerned. When a shareholder requests the convocation of a shareholders’ meeting, it means that a difference of opinion has arisen between the shareholder and the company, so it is important for the court to hear the opinions of both parties in order to make a proper decision. Although it is not a legal requirement for the company (directors) to be interrogated, a representative of the company is usually summoned to give his/her opinion before the court. Since the hearing is conducted as a non-contentious case, the provisions of jurisdiction (Article 868 of the Companies Act) and prima facie evidence (Article 869) apply. In the case of the Tokyo District Court, the 8th Civil Division of the District Court handles cases involving petitions for permission to convene a general shareholders meeting.

Contents of hearing at the hearing

The requirements for filing a petition for permission to convene a general meeting of shareholders under Article 297 of the Companies Act are formal requirements, and their existence is fairly clear, so the first step is to check the formal requirements (e.g., whether the shareholder making the request to convene the meeting has 3% or more of the voting rights). The one requesting the convocation must make a prima facie showing from the shareholders’ list and other materials that he or she holds 3% or more of the shares. Even if the petitioner does not have prima facie evidence, the court will instruct the company to submit a copy of the shareholders’ list or other documents, and the company may provide the documents.

Claim of abuse of rights

It is likely that a company will often claim abuse of rights in response to a petition for permission to convene a general meeting of shareholders. However, since it is extremely unlikely that a petition filed by a shareholder that meets the formal requirements will fall under the category of abuse of rights, it is likely that the company’s claim of abuse of rights will not be recognized in many cases. However, if the company claims abuse of rights, it may be necessary to rebut the claim, and the company may also rebut the claim again, so the hearing date is often held several times. In cases where the company and minority shareholders are in disagreement, it usually takes from three to six months from the filing of a petition for permission for a general shareholder meeting to the issuance of a decision.

Decision on permission to convene a general meeting of shareholders

If, as a result of the hearing, the court determines that the requirements for a petition for permission to call a shareholders’ meeting are met, the court will issue a decision granting permission to call a shareholders’ meeting. The decision is communicated to the petitioner by way of a “notice,” and the court usually sends a written decision by mail. The written decision simply states, “Permission is granted to convene a general meeting of shareholders.” and no reasons are given. There is no appeal against the decision to permit the convocation of a general shareholders’ meeting (Article 874, Paragraph 4 of the Companies Act). If the petition for permission to convene a general shareholders meeting is rejected, the petitioner may file an immediate appeal (Article 66, Paragraph 2 of the Non-Litigious Cases Procedure Law).

Convocation of a general meeting of shareholders by shareholders

A shareholder who has received a decision granting permission to convene the meeting may convene the meeting himself or herself by sending a notice of meeting to all shareholders. At the convened meeting, the shareholder who requested the meeting appoints a chairman as provisional chairman. In many cases, the articles of incorporation stipulate that a director shall chair the meeting, but this is interpreted to apply only to shareholders’ meetings called by directors and not to shareholders’ meetings called by minority shareholders. However, there is no problem if a shareholder passes a resolution to appoint a chairman as a temporary chairman, and as a result, a representative director or a former director is appointed as the chairman. Ultimately, the chairman of the meeting will be elected by a majority of the shareholders present and voting. Since the court’s permission is granted with respect to matters for which the minority shareholders may convene a general meeting of shareholders, no resolution may be passed on matters other than those for which the court has granted permission. If a resolution is passed on matters other than those permitted by the court, it is subject to an action for revocation of the resolution of the shareholders’ meeting (Article 831, Paragraph 1 of the Companies Act).

Services provided by our firm

Kuribayashi Sogo Law Office often submits petitions for permission to convene shareholders’ meetings to the court on behalf of minority shareholders who file petitions for permission to convene shareholders’ meetings. In addition to obtaining the decision for permission to convene a general shareholders’ meeting, Kuribayashi Sogo Law Offices will also provide support to shareholders with respect to the subsequent general shareholders’ meeting. The services we provide include preparation of the notice of convocation of the shareholders’ meeting, dispatch of the notice of convocation, reception desk work for the shareholders’ meeting, preparation of the agenda scenario for the meeting, attendance on the day of the meeting, preservation of the proceedings of the meeting by audio tape recording, preparation of the minutes of the meeting, and application procedures for registration of changes in directors and officers. In addition to representing minority shareholders, we also represent companies that have filed a petition for permission to call a shareholders’ meeting and provide various types of advice both in and out of court, such as attending and defending at the hearing and holding a shareholders’ meeting initiated by company officers as a countermeasure against the petition for permission to call a shareholders’ meeting.