MK @ Legal Biz Leaf The necessity of holding a shareholders’ meeting
Although Japanese-owned companies, many directors of Kabushiki-Kaisha (a “Company”) with a small number of shareholders, or companies whose only shareholders are acquaintances or relatives, tend not to aware of what procedures to follow to hold a shareholders’ meeting. More than that, there are some companies even do not hold a general shareholders’ meeting even once a year nor do not prepare minutes of the meeting.【 Skip to the conclusion 】
However, Japanese Companies Act clearly stipulates that it is mandatory to hold at least one shareholders’ meeting each year (ordinary general meeting of shareholders), and to prepare minutes of each meeting. Accordingly, administrative penalties of up to 1,000,000 JPY are provided for any violation of these provisions.
Note: The Minutes can be prepared either as paper or as electronic records.
In addition, if there were violation of the regulation regarding the procedure for convening or holding a general shareholders’ meeting, the resolution of such meeting might be cancelled or invalidated. Therefore, the shareholders’ meeting always need to be held according to the lawful procedure.
→If certain requirements are met, it is also available to have online shareholders meeting or to pass resolution by written consents of all shareholders.
Scope of Decision-Making Authority of Shareholders’ Meetings
The scope of decision-making authority at a shareholders’ meeting varies depending on whether the company has a board of directors or not.
Companies without a board of directors:
Shareholders may make decisions on “all matters” concerning the company.
Companies with a board of directors:
Resolutions passed at a general shareholders’ meeting do not have legal effect unless they are stipulated by law or the articles of incorporation to be passed at a general shareholders’ meeting.
So to say, the establishment of a board of directors slightly narrows the scope of decision-making authority of the general shareholders’ meeting.
The reason for above difference is that, in general, companies with a board of directors are often medium- to large-sized companies, whose shareholders are not very interested in the management of the company, in general.
For example:
When a company with 500 shareholders issues new shares for subscription, in general, most of the shareholders are interested only in the maximum number of shares to be issued and the minimum amount of capital to be contributed (i.e., whether their share price and voting rights will be reduced), and not to care in whom those shares will be allocated to.
Therefore, it is more beneficial for the company and shareholders to let the board of directors to decide on such minor details, rather than holding a shareholders’ meeting by spending time and costs.
On the other hand, companies that do not have a board of directors generally have a smaller number of shareholders, who tend to have more interested in the management of the company. Therefore, the allotment of subscription is stipulated to be decided at the shareholders’ meeting.
For your information:
A company may also provide in its Articles of Incorporation the authority to determine the target and number of shares to be allotted for subscription by a majority decision of the directors.
→A resolution of a general meeting of shareholders is required to change the Articles of Incorporation, thus it does not result in taking away shareholders’ decision-making authority.
Resolution to confirm intention of shareholders.
Regardless of the above, in practice, a resolution may be passed at a general shareholders meeting even when the board of directors has the authority to make a decision. This is beneficial for the Company to confirm the intention of the shareholders and to use the minutes of the meeting as evidence in the event if there will be a dispute with the shareholders.
For Example: Conflict of Interest Transactions with Representative Directors
A company with a board of directors purchases real estate from a representative director (or from other company managed by the representative director).
In addition to a resolution of the board of directors (principle approval authority), it is possible to include this item for resolution at a general meeting of shareholders, in the sense of confirming the intention of the shareholders.
- Holding a shareholders’ meeting and keeping minutes of the meeting is a legal obligation.
- If the meeting is not held in accordance with lawful procedures, the resolution may be cancelled or invalidated.
- The scope of decision-making authority of a general shareholders’ meeting varies depending on whether the company has a board of directors or not. As a general rule, the decision-making authority of a shareholders’ meeting is narrower in the former case than in the latter.
- Even when the general shareholders’ meeting does not have the authority to pass the resolution, it is possible to include such items to a resolution in order to confirm the will of the shareholders.
MK@ 04/09/2022
