Author: Shintaro Takasaki, Attorney at Law

In December of 2019 a revision to a part of the Companies Act was promulgated and announced. Almost all of this revision became effective from March 1, 2021. Also, the electronic provision of shareholder meeting materials is planned to be enforced from 2022. This revision is a core revision which has not happened since 2014 and is expected to have an important effect on shareholder meetings, etc..

In this article we introduce an outline of the important revisions as follows:

1. System for provision of electronic shareholder meeting materials

In regard to the provision of shareholder meeting materials, etc., to shareholders, there have been systems, like the electronic provision of materials to individual shareholders who agree to receive them, and the system where display can be made on an internet website of a part of the shareholder meeting materials based on provision in the articles of incorporation. In this revision, the new electronic system has been introduced where all shareholder meeting materials can be posted on an internet website based on provision in the articles of incorporation, and it is sufficient notice to the shareholders to print minimum information of the date, place, and purpose of the shareholder meeting and the address of the website.

2. Limitation on abuse of exercise of shareholder proposal right

A right to propose resolutions at a shareholders meeting is granted to shareholders (shareholder proposal right) but there are cases where one shareholder submits a large number of proposals and there are cases where this has been adjudicated by a court to be an abuse of the shareholders right. In this revision, in order to restrict an abuse of the shareholder proposal right, the number of proposals that one shareholder can propose at the same shareholders meeting is restricted to 10.

3. Re-consideration of rule regarding compensation, etc., of directors

(1)　Determination of policy for determination of compensation, etc.

In a company with a nominating committee, etc., it was required to determine the policy for determination of compensation, etc.. By this revision, among companies with an auditors committee the shares issued by listed companies that are large companies, the company that bears the obligation to submit the securities report and for a company establishing an audit, etc., committee the board of directors must determine the matters provided in the legal affairs ministerial ordinance in regard to the policy for determining the contents of compensation, etc., for each director individually. This does not apply in the case where the individual compensation, etc., is determined in detail by a resolution of a shareholders meeting or in the articles of incorporation.

(2)　Expansion of matters to be set out in the business report

It has been pointed out that the business report contents are insufficient in respect of compensation, etc., for officers and it should be expanded. In this revision, in respect of the above (1), the board of directors should set out in the business report matters for the policy relating to determination of the contents of compensation, etc., for each director. As from before the revision, there is no obligation to disclose the actual individual compensation amount.

4. New establishment of provisions relating to indemnity by the company and D&O insurance

New provisions are established for the case where an officer, etc., receives a claim for liability relating to exercise of duties and the company must indemnify expenses, etc., (company indemnification) and requirements, etc., for necessary procedures and disclosure of information are stipulated. In the same way, new provisions are newly provided for D&O insurance and necessary procedures, etc., are provided.

5. Introduction of outside directors

By this revision, for a listed company, etc., (among companies establishing an auditors committee, listed companies that are large companies and companies that have an obligation to submit a securities report regarding issuance of shares) it has become required to establish outside directors. Since most listed companies have already established outside directors this is not expected to have much effect on actual operations.

6. In conclusion

In addition to the above, as a new method of restructuring an entity, the ability to transfer one’s own company shares to a shareholder of another company in the case of a company making a subsidiary of another company and the share transfer system is newly established.

Our office has broad experience in companies law matters from listed companies to mid-and-small sized companies. Please feel free to consult us, not only for this current revision of law.