Shareholder Rights
This section summarizes the rights of a shareholder of a Japanese company (kabushiki kaisha).
Matters requiring shareholder approval
Broadly speaking, shareholders of a Japanese company have the right to vote on the appointment of board members and on certain fundamental changes to the organization or share capital that are considered essential for shareholders. Shareholders also have the power to declare dividends, unless the company’s Articles of Incorporation specify that only the board has this power.
Matters that require an ordinary resolution (i.e., a resolution passed by a simple majority) include:
- Director appointment, removal and remuneration (Note: If the company adopts a Three-Committee Structure, the remuneration committee has the power to approve directors’ remunerations) Director Appointment and Removal)
- Corporate auditor appointment and remuneration Corporate Auditors)
- Accounting auditor appointment, removal and remuneration
- Cash dividend (unless the company’s Articles of Incorporation specify that only the board has the power to declare dividends)
- Share buyback (unless it is targeted buyback from a particular shareholder or a particular group of shareholders, in which case a special resolution is required) (also note that certain buybacks do not require shareholder approval)
- Reduction of statutory reserve, ‘other capital surplus’ or ‘other retained earnings’
Matters that require a special resolution (i.e., a resolution passed by a two-thirds majority) include:
- Corporate auditor removal Corporate Auditors)
- Release of liabilities of director, corporate auditor or accounting auditor (or, in the case of a Three-Committee Structure company, executive officer) Director Liabilities)
- Non-cash dividend (unless shareholders have an option to receive cash instead)
- Targeted share buyback from a particular shareholder or a particular group of shareholders
- Deeply discounted issuance of equity securities to a particular shareholder or a particular group of shareholders
- Stock consolidation (a reverse stock split), which can be used to cash out minority shareholders
- Amendment to the Articles of Incorporation
- Merger and other statutory procedures for reorganizations (i.e., ‘share exchange’, ‘partial share exchange’, ‘share transfer’ and ‘demerger’) (unless a short-form exemption is available)
- Disposal of all or a material part of business or shares in a material subsidiary
- Acquisition of the entire business of another entity (unless a short-form exemption is available)
- Reduction of capital (note in some cases only an ordinary resolution is required)
- Dissolution of the company
Please note that this is not a comprehensive list. Also, shareholders can create any other shareholder-reserved matters by including such provisions in the Articles of Incorporation.
Key thresholds
The key thresholds for shareholders of a Japanese company are as follows:
| 1 unit of shares (see below for an explanation of Unit) | Right to inspect shareholder register Right to inspect board minutes, with court permission Right to inspect proxies and ballots submitted for a shareholders’ meeting |
| 1 unit of shares, holding for 6 months | Right to initiate a derivative action to enforce the liability of directors, corporate auditors, officers, or the accounting auditor on behalf of the company Right to petition the court for the appointment of an inspector for the procedural aspects of a proposed shareholders’ meeting |
| 1% or 300 votes, holding for 6 months | Right to make a shareholder proposal for a shareholders’ meeting |
| 1% | Potential obligation to submit a foreign investment filing |
| 3% | Right to inspect and copy the accounting books and records of the company Right to inspect and copy the accounting books and records of the company’s subsidiaries, with court permission Right to petition the court for the appointment of an inspector to investigate the operational and financial situation if there is suspicion of illegal actions Right to prevent the board from discharging a director, a corporate auditor, an officer, or the accounting auditor from their liability to the company, even if the Articles ofIncorporation permit such discharge Right to petition the court for the dismissal of a director or corporate auditor who is in breach of a material obligation if their dismissal was rejected at the shareholders’ meeting |
| 3%, holding for 6 months | Right to request the board to call an extraordinary shareholders’ meeting |
| 5% | Obligation to file a Large Shareholding Report Potential obligation to launch a tender offer |
| 10% | Potential obligation to submit a foreign investment filing Obligations under the short-swing profit rules |
| 20% | Potential obligation to submit a merger filing |
| 33.34% | Power to block special resolutions Potential obligation to launch a tender offer |
| 50.00% | Power to block ordinary resolutions |
| 50.01% | Power to pass ordinary resolutions |
| 66.67% | Power to pass special resolutions (including power to cash out minority shareholders at a fair price) |
| 90.00% | Power to cash out minority shareholders at a fair price without holding a shareholders’ meeting. Note that it is possible to cash out minority shareholders with 66.67% by holding a shareholders’ meeting. |
Please note that the calculation of the ownership percentages and the rules for aggregating shareholdings among related parties vary based on the applicable regulations. Please seek legal advice before making any investment decisions or developing an investment strategy.
One share, one vote principle
Non-voting shares: Under the Companies Act, a company can create a class of shares that has no (or limited) voting power by adding such a class in its Articles of Incorporation.
Multiple-voting shares: Under the Companies Act, a share cannot have more than one vote. However, it is possible to create a synthetic dual-class stock structure by using a unit share structure discussed below.
Unit of shares: The Companies Act allows a company to adopt a unit share structure under which a designated number of shares (e.g., 100 shares) comprise a unit and voting rights are granted to units instead of shares. Shares that do not comprise a unit are entitled to economic rights only and are not entitled to vote or to attend shareholders’ meetings. The designation of unit must be stipulated in the Articles of Incorporation.
TSE requires all listed companies to designate 100 shares per unit for the listed shares. If a listed company has non-listed class of shares, those shares can have no (or a different) unit designation.
A synthetic dual-class stock structure can be created by issuing two classes of economically similar shares that have different unit numbers (e.g., Class A needs 100 shares to form a unit, but Class B needs only 10 shares to form a unit).
Equal treatment principle
Under the Companies Act, a company must treat its shareholders equally based on the number and class of shares held by them. In other words, a company is not allowed to provide a disproportionate benefit (or disadvantage) to a particular group of shareholders over another group of shareholders. The equality principle often becomes an issue in a takeover defense context.