MK @ Legal Biz Leaf Resolutions at the General Meeting of Shareholders
The General Meeting of Shareholders has the following 4 main requirements for resolutions.
- Ordinary resolution (Futu ketsugi)
- Special resolution (Tokubetsu ketsugi)
- Peculiar resolution (Tokushu ketsugi)
- Consent of all shareholders
For a typical private company, only 1 and 2 above resolution are regularly used at a general shareholders’ meeting.
The Companies Act determines which requirements are applied to which specific types of resolutions.
However, the brief idea is as follows:
Special resolutions (More stringent requirements than ordinary resolution) are adopted for matters that are related to the outline of the company’s management policy or increase or decrease of rights of existing shareholders, such as (1) amendment of articles of incorporation, (2) determination pertaining to shares subscription (=invitation of new shareholders may lower the ownership ratio and other right of existing shareholders), (3) approval of reorganization plans and contracts, (4) dissolution of the company, etc.
Ordinary resolution are adopted for other general matters than those of which require special resolutions.
Criteria for Fulfillment of Requirements
There are two steps in determining whether or not the requirements for a resolution are met.
- Fulfillment of quorum (the number of attendees required to hold a general meeting of shareholders).
- Fulfillment of votes in favor
It would be easier to understand by looking at specific examples, so let’s look at them below.
Sample Case:
Shareholder Adam (A) 60% voting rights
Shareholder Ben (B), Catharine (C), Daisuke (D), and Eri (E) = 10% voting rights for each
(They are all entitled to exercise their voting rights at the meeting)
Number of Quorum Number of Affirmative Votes
*The requirement can be
tightened by setting in
the Articles of Incorporation (AoI).
Ordinary Resolution
Pattern I
*In Principle A majority* of the voting rights of shareholders
entitled to exercise their voting rights
presents at the meeting
* 50%: Fail 51%: Pass
For Example:
If only A attends the meeting: Pass
If B~E attend: Fail A majority of affirmative votes of
the shareholders
present at the meeting.
For Example:
[If all shareholders attend the meeting]
If only A votes in favor: Pass
If B~E votes in favor: Fail
Ordinary Resolution
Pattern II
*Setting in the AoI One-third [33.3%] or more of
the voting rights of shareholders
entitled to exercise their voting rights
presents at the meeting
For Example:
If B~E attend: Pass A majority of affirmative votes of
the shareholders
present at the meeting.
For Example:
[In the case shown on the left]
If B~D votes in favor: Pass
Ordinary Resolution
Pattern III
*Setting in the AoI Abolition of quorum requirement
*This pattern cannot be used for
the resolution of election/dismissal of officers
For Example:
If only B attends: Pass A majority of affirmative votes of
the shareholders
present at the meeting.
For Example:
[In the case shown on the left]
If only B votes in favor: Pass
Special Resolution
Pattern I
*In principle A majority of the voting rights of shareholders
entitled to exercise their voting rights
presents at the meeting
For Example:
If A attends the meeting: Pass
If B~E attend: Fail Two-third [66.6%] or more of
affirmative votes of the shareholders
present at the meeting
For Example:
[If all shareholders attend the meeting]
If only A votes in favor: Fail
If A and B vote in favor: Pass
Special Resolution
Pattern II
*Setting in the AoI One-third [33.3%] or more of
the voting rights of shareholders
entitled to exercise their voting rights
presents at the meeting
For Example:
If B~E attend: Pass Two-third [66.6%] or more of
affirmative votes of the shareholders
present at the meeting.
For Example:
[In the case shown on the left]
If B~D votes in favor: Pass
Voting Right Ratio and Risk Management
- A sole ownership
In case of sole ownership (e.g., owning 100% Japanese subsidiary), both the quorum and the number of votes in favor will naturally be met to the requirement.
Thus, there is no need to consider too much about the resolution requirement. - 50%- 50% ownership ratio
In case of establishing company with two people and having 50% voting ratio each, both of them need to participate in all shareholders meeting in order to meet the requirement of quorum. However, there are risk to be considered that if two people dispute with each other or if one suddenly lost contact with the other, it will turn out to become impossible to hold a shareholders’ meeting. Therefore, it is advisable to relax the quorum provision by setting in the Articles of Incorporation, or to make an slightly uneven ownership ratio (e.g., 51% – 49%).On the other hand, it has to be well considered that by making such uneven ration, there is a risk that a person with the majority of voting rights may have the right to make decisions by his/her own.
Conclusion (⊙ꇴ⊙)
- An ordinary resolution shall be approved by a majority of the votes of the shareholders present at the meeting where the shareholders holding a majority of the voting rights of the shareholders who are entitled to exercise their votes are present.
- Special resolutions shall be approved by a majority of two thirds or more of the votes of the shareholders present at the meeting where the shareholders holding a majority of the votes of the shareholders entitled to exercise their votes at such shareholders meeting are present.
- The requirement for a quorum can be relaxed (except there is a minimum regulation for the ordinary resolution of election/ dismissal of officers stipulated by law), and the requirement for the number of affirmative votes can be tightened by setting in the Articles of Incorporation.
- For a sole shareholder (e.g., owning 100% shares of Japanese subsidiary), there is no need to consider about the resolution requirements.
- It is important to adjust the resolution requirements in the Articles of Incorporation by carefully considering who and to what extent you want to have the authority to make decisions.
MK@ 04/24/2022
