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Virtual Annual General Meetings in Japan – Annual General Meetings in Times of COVID-19

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 audit reports, 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 within three months from the end of the fiscal year. 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 at the AGM, they must be recorded in the shareholders’ register as of the record date. The period between the record date and the date when shareholders exercise their voting rights must not exceed three months. Many companies have stipulated a record date for the AGM in their articles of association which coincides with the end of the financial year. If these companies postpone their AGM by more than three months, they must set a new record date and announce it by public notice. 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 for this, the meeting will be adjourned. In the following meeting, the financial statements and audit reports will then be reported and explained to the shareholders.

Alternative 2 – Hybrid-Type Virtual Shareholder Meeting: While it is not allowed 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 confirming 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 of a shareholder who attends the AGM online:

  hybrid participatory virtual shareholder meetings hybrid observational virtual shareholder meetings
ask questions yes no

(questions may be allowed by a company at its sole discretion)

exercise voting rights yes not at the AGM (only via mail or electronic means prior to the AGM or by proxy)
vote on motions no, due to administrative difficulties no

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. Generally, it is sufficient if a company sends voting forms to all shareholders indicated in the shareholders’ register. The person who is in possession of the voting forms is regarded as shareholder entitled to vote on the AGM. According to the guidelines by METI an ID and password sent together with the voting forms to the shareholders prior to the AGM fulfill the same function. The person logging in with the respective ID and the password is considered the shareholder. Whether the ID and the password are used by the shareholder himself or another person is irrelevant.

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

As there have been very few companies that made 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 leaders/stakeholders. We expect further developments in the not so distant future and will update you accordingly.

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