Shinsaku FUJIKAWA, Qualified Administrative Scrivener / Immigration Lawyer, presents insights of measures in Japan related to the annual legal documentation for companies in Japan.
Voting Rights and Timing of the Ordinary General Shareholders Meeting (“OGM”)
Paragraph 1 of Article 296 of the Companies Act states that the timing of the ordinary general shareholders meeting (hereinafter “OGM”) is to be called in “within a defined period of time after the end of each business year.” Thus, the Companies Act itself does not stipulate the specific timing of the convocation of the OGM.
In Japan, in their Articles of Incorporation (hereinafter “AOI”), almost all companies state the following:
- The OGM will be held within 3 months from the date following the last day of each business year; and
- The shareholder(s) with voting rights who/which is/are enrolled or recorded in the list of shareholders on the last day of the business year (hereinafter “Record Date“ in Japanese, known as ““基準日”), is/are entitled to execute their voting rights at the OGM in connection of such business year.
Due to Covid-19, many companies may be experiencing difficulties to hold the OGM. For those companies willing to postpone the OGM, they can decide a new Record Date and the content of the rights which the Shareholders on such Record Date may exercise and publish them through their means of publication no later than two (2) weeks prior to such Record Date.
In case where the initial Record Date was 31 December 2019 and where the shareholders did not/were unable to exercise their voting rights until after 31 March due to the postponement of the OMG, a new Record Date can be set, and the OGM can be held even after 31 March.
The publication of a new Record Date through the official gazette costs 35,893 JPY (Tax Included), using the standard format (10 lines).
The corporate tax filing is made based on the financial statements approved in the OGM. Thus, if the OGM is postponed, consideration should be made with regards to submission of the filing.
Adjournment of OGM
The Companies Act also allows for the adjournment of the OGM (in Japanese, known as ““継続会”). Simply put, first, within 3 months from the date following the last day of each business year, companies hold the initial OGM and, in this meeting, the adjournment of the OGM is approved. Then, the second OGM is held later. This option is expected to be used when some unexpected complication occurs.
The first OGM and the second OGM are treated as one OGM, which means that the convocation procedure is not necessary for the second OGM (Article 317). Moreover, for this reason, it is said that a new Record Date does not have to be established even if the second OGM is held after 3 months from the date following the last day of each business year.
Few precedents in connection with the adjournment of the OGM exist, and hence, there is still some arena for discussion. For example, the second OGM is expected be held as early as possible (e.g., within 2 weeks). Due to Covid-19, especially for listed companies, the Financial Services Agency-affiliated counsel stated that the second OGM could be held “within a reasonable period” (such as 2~3 months).
But what if Shareholders had not held OGM?
No meeting, no approval.
First of all, “no OGM” is a violation of Paragraph 1 of Article 296, which incurs a non-penal fine (not more than 1 million JPY) as stipulated in Item 18 of Article 976.
From the commercial registration side, the officers whose term expires at the end of the OGM are going to retire 3 month after the last day of the business year.
However, if a company cannot maintain the minimum number of officers in accordance with the Companies Act and the AOI, they shall continue to have the rights and obligations of their respective roles until new officers assume their office.
With respect to the statutory auditor, the term of office is automatically renewed without the renewal resolution in the OGM, but if there is no OGM, this automatic renewal does not occur, as the Companies Act does not have the stipulation of their continuation of the rights and obligations, unlike for the officers. In this case, a provisional statutory auditor needs to be elected.
From the tax side, the tax-deductibility of the remuneration/bonus paid to the officers could become an issue requiring further analysis.
Dividend of Surpluses
The record date in connection with a dividend of surpluses is also set to the end of the business year. Thus, the same line of reasoning of the setting of a new Record Date in connection of the exercise of the voting rights of the shareholder(s) shall also apply.
If the AOI stipulates that the dividend of surplus is approved by the Board of Directors, the dividend can be made even if the OGM is not held within 3 months from the date following the last day of each business year. However, in actuality, the majority of companies do not have such stipulation in their AOI.
Even in this context, it is one option to use the adjournment of the OGM. That is, the companies have the first OGM to approve the dividend of surpluses within 3 months from the date following the last day of each business year, and then, the second OGM （継続会） is held later to approve the financial statements and/or the auditor’s report. By so doing, the expectation of the shareholders as of the original record date is not breached, and companies can retain their trust. However, as noted, the adjournment of the OGM has some arena for further discussion.
Disclaimer: This document has been produced by Mazars in Japan for its Clients. It may not be reproduced (in whole or in part) or transmitted to any other person without the prior consent of Mazars in Japan. Whilst we endeavor to share information up to date and correct, Mazars is not responsible for any errors or omissions, or for the results obtained from the use of this information.
The information is as of 16 April 2020.
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