A new Company Law is expected to replace and substantially change the provisions of the Commercial Code that relate to companies. Certain substantial changes related to the stock system are:
Under the new law, dividends can be approved by a resolution of the board of directors throughout a fiscal year. Previously, a resolution of a general meeting of shareholders was required and dividends could only be declared annually or semi-annually during each fiscal year. The new law also clarifies that companies may make in-kind dividends.
The new law establishes a new procedure for share repurchases. Under the new procedure, a share repurchase plan must be approved by a resolution of a general meeting of shareholders. The company must notify all shareholders of the class of shares to be purchased. Shareholders wishing to have their shares purchased must apply to the company. The company will then purchase shares from these shareholders on a pro rata basis.
Also, shareholders will not be entitled to any tag-along rights if a company repurchases its shares at or below the market price.
Fractional share system
Currently, a company may adopt either the fractional share system or the unit share system under the Commercial Code. The new law abolishes the fractional share system. Some companies using the fractional share system are expected to switch to the unit share system by means of a special procedure, which would allow the board of directors to adopt the unit share system without exchanging any share certificates if the company makes a stock split.
A draft of the new law was submitted to the Diet for deliberation on March 22 2005. The new law is expected to be enacted in the first half of 2005 and come into effect in April 2006.