Virtual Annual General Meetings in Japan

With the Japanese government declaring the state of emergency shortly before the upcoming annual general meeting (AGM) season and audit firms not being able to finalize their statements, many companies are wondering how to comply with their obligations under the Companies Act (Act).

It should be noted, that the Act does not require the AGM to be held at the end of June. Companies are therefore generally able to postpone their AGM to a later date. This applies to both listed and unlisted companies.

For shareholders to exercise their rights on the AGM, they must be recorded in the shareholders register as of the record date. Since many companies have stipulated a record date in their articles of association which coincides with the end of the financial year this may lead to the result that shareholders participate in the postponed AGM as shareholders, despite having transferred their shares in the meantime. Companies that want to avoid such a situation may therefore decide to hold the AGM at the originally intended date and consider any of the following approaches:

Alternative 1 – Adjournment: A company may decide to hold the AGM at the originally scheduled date, elect the directors and resolve other timely matters on that date. Except from this, the meeting will be adjourned. In the following meeting the financial statements and audit reports will then be discussed and approved by the shareholders.

Alternative 2 – Hybrid-Type Virtual Shareholder Meeting: While it is not possible to replace a physical shareholder meeting by a virtual shareholder meeting, it is possible to use some hybrid models. More recently, the Ministry of Economy, Trade and Industry (METI) issued interpretative guidelines stating that it is possible to hold so-called hybrid-type virtual shareholder meetings. These are shareholder meetings that can be attended both physically and virtually. In general, there are two types of hybrid shareholder meetings, (i) hybrid participatory virtual shareholder meetings and (ii) hybrid observational virtual shareholder meetings. In both cases, a physical meeting must be held. The virtual participation is only supplementary.

In a hybrid participatory virtual shareholder meeting, shareholders can exercise their shareholders’ rights almost to the same extent as if they were attending the meeting physically. In a hybrid observational virtual shareholder meeting, shareholders attending the meeting online are limited to an observational role. A company may choose freely between both options.

The following table shows the rights a shareholder has who attends the AGM online:

Since it is necessary to identify all attending shareholders on the day of the AGM, certain measures must be implemented in case of a hybrid virtual general meeting. According to the guidelines by METI it is sufficient if a company sends voting forms together with an ID and password to its shareholders prior the AGM, so that shareholders can freely choose whether they want to attend physically or online. When attending online, a shareholder must use the ID and the password to log in and to attend the meeting online. If the ID and the password are used by a person other than the shareholder, the logged in person attending the shareholder meeting is considered the shareholder himself.

Due to administrative burdens and related costs proxies may only attend the physical meeting on behalf of the shareholder.

Some of our clients have decided to hold hybrid virtual meetings this year. As it is the first time companies make use of this model there is no established practice yet. We are monitoring the developments in this field and actively participate in discussions with other industry stakeholders and METI. We expect that there will be further developments in the not so distant future and will update you accordingly.