This content is from: Local Insights

Japan

The trend to mould the Commercial Code of Japan to business needs continues. From April 1 2002, amendments to the Commercial Code will dramatically relax the restrictions on voting rights of shareholders of Japanese joint-stock companies (kabushiki kaisha).

Pre-amendment (pre-April 1 2002)

  • There are only two possibilities in relation to voting rights – shares either have voting rights or they have no voting rights.
  • Only dividend preference shares may be issued without voting rights.
  • Compulsory granting of voting rights in shares without voting rights if the full dividend preference is not satisfied.
  • The total number of shares without voting rights must not exceed one-third of the total number of the issued shares.
  • Matters that must be decided by resolution of certain class of shareholders in general meeting are prescribed in the Commercial Code.

Post-amendment (post-April 1 2002)

  • There are many possibilities in relation to voting rights - possible to partly restrict voting rights.
  • Possible to restrict voting rights attaching to any class of share.
  • Discretion to create absolute non-voting shares, in which voting rights are not compelled to be granted in any circumstance.
  • The total number of shares with limited or no voting rights must not exceed one-half of the total number of the issued shares. (If the company adopts the unit share system, the total number of units of shares with limited or no voting rights must not exceed one-half of the total number of the units of issued shares.)
  • Discretion to determine whether certain matters decided by resolutions of shareholders in general meetings or board of directors also require the resolutions of certain class of shareholders in general meetings.

Implication

Combined with the new stock right amendments to the Commercial Code, these voting right amendments create huge potential for greater flexibility in the Japanese corporate governance structure. It will eventually become possible to have less than one vote per share by linking the shares with the unit share system. Veto rights in relation to pre-determined issues will also be able to be attached to the shares. This may be especially useful in joint ventures.

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