Your First Annual Shareholders' Meeting: How Is the Timing Determined?

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

Once a fiscal year ends, a company begins preparing for its annual shareholders' meeting. Article 296(1) of the Companies Act provides that an annual shareholders' meeting "must be convened within a certain period after the end of each fiscal year." In practice, the meeting is commonly held "within three months after the fiscal year end," but the law does not impose a uniform three-month deadline. For a non-public company that has taken on outside shareholders, it is important to check the record date in the articles of incorporation and the notice period for the convocation notice, and to set the schedule by working backward.

The Timing of the Annual Shareholders' Meeting and the Record Date in the Articles of Incorporation

The starting point for determining the timing of the annual shareholders' meeting is the record date provision in the company's own articles of incorporation. Article 124(2) of the Companies Act limits the rights that may be exercised when a record date is set to those exercisable within three months from the record date. If the last day of the fiscal year is the record date, the meeting must be held within three months for voting rights to be exercised based on that record date. If that period will be exceeded, consider procedures to properly determine which shareholders may exercise voting rights, such as setting a new record date.

Put the other way around, for a company whose articles set a different record date or that has room to use a date other than the last day of the fiscal year as the record date, the range of time actually available changes. When newly setting a record date not provided for in the articles, public notice must be given at least two weeks before the record date (Article 124(3) of the Companies Act). The first step is to check your company's articles of incorporation and confirm when the record date for voting rights is set.

The Deadline for Sending the Convocation Notice and the Method of Notice

Once you have a rough idea of the meeting date, check the deadline for sending the convocation notice and the method of notice. Article 299(1) of the Companies Act provides that, as a rule, the convocation notice for a shareholders' meeting must be sent at least two weeks before the meeting date. However, for a non-public company (a stock company that is not a public company) that has transfer restrictions on all of its shares and has not adopted voting in writing or electronic voting, this is shortened to, as a rule, at least one week before.

Furthermore, a non-public company without a board of directors that has not adopted voting in writing or the like can shorten this notice period to less than one week (for example, three days before) by a provision in its articles of incorporation. If you set the sending date without checking the notice period in the articles, the notice period may be insufficient, which could lead to procedural defects such as rescission of resolutions. The notice must be sent by the deadline set by law and the articles. On top of that, set the schedule allowing time for shareholders to consider the proposals after the notice arrives.

The method of notice also needs to be checked according to the company's structure. Companies with a board of directors and companies that have adopted voting in writing or electronic voting are required to give the convocation notice in writing (Article 299(2) of the Companies Act). Even in this case, if consent has been obtained from shareholders in advance, notice may be given by electromagnetic means prescribed by law, such as email (paragraph 3 of the same Article). On the other hand, for a non-public company without a board of directors that has not adopted voting in writing or the like, the law does not limit notice to writing, and oral communication or email are also options. That said, for a company with outside shareholders, it is sensible to use a form that leaves a record, from the standpoint of later confirmation and dispute prevention.

Organizing the Agenda (Approval of Financial Statements and Election of Officers)

Among the proposals handled at the annual shareholders' meeting, the central items are the approval of the financial statements and the election of officers.

As a rule, financial statements are submitted to the annual shareholders' meeting for approval (Article 438(2) of the Companies Act). A non-public company without an accounting auditor passes a resolution approving the financial statements in line with this rule. The business report, on the other hand, which conveys the status of operations, is a matter to be reported to the meeting (paragraph 3 of the same Article). For companies with an accounting auditor, a special rule allows the financial statements to be reported rather than approved, but only where the requirements of Article 439 of the Companies Act are met, such as obtaining the prescribed unqualified opinion.

For the election of officers, check when each officer's term expires. The term of an ordinary director runs until the conclusion of the annual shareholders' meeting for the last fiscal year ending within two years after election (Article 332(1) of the Companies Act). In a non-public company with transfer restrictions on all of its shares (excluding companies with an audit and supervisory committee and companies with a nominating committee, etc.), the articles of incorporation can extend this to the conclusion of the annual shareholders' meeting for the last fiscal year ending within ten years after election. A director's term can also be shortened by the articles of incorporation or a resolution of the shareholders' meeting. The term of a company auditor also runs, as a rule, until the conclusion of the annual shareholders' meeting for the last fiscal year ending within four years after election, and in a non-public company the articles can extend this by setting the number of years at ten. A company auditor's term cannot be freely shortened by the articles (Article 336 of the Companies Act). Check the election date and the fiscal year end, identify the conclusion of the relevant meeting, and find out in advance whether any officers are up for re-election this term.

In a company in which outside shareholders have invested, also check the provisions of the investment agreement and shareholders' agreement. Even for the approval of financial statements or the election of officers, the contracts may require prior notice or consent. Proceeding with a resolution without going through the prescribed procedures could expose the company to claims of breach of contract, so check the contract provisions in parallel with preparing the convocation notice.

How to Proceed with a Written Resolution (Deemed Resolution) and Points to Note

In a non-public company with a limited number of shareholders, a "deemed resolution" can be used, in which consent in writing or by electromagnetic record substitutes for a resolution without actually holding a meeting. Article 319(1) of the Companies Act provides that when a director or shareholder makes a proposal on a matter that is the purpose of the shareholders' meeting, and all shareholders entitled to exercise voting rights on that matter indicate their consent in writing or by electromagnetic record, a resolution of the shareholders' meeting approving the proposal is deemed to have been passed. No provision in the articles of incorporation is required to use this system.

The prerequisite for a written resolution is the consent of "all" shareholders with voting rights. A majority, or the two-thirds required for a special resolution, is not enough; if even one shareholder withholds consent, the resolution itself is not passed. Where there are outside shareholders, it is important to build in time to collect consent documents from all of them. In addition, if reporting matters such as the business report are to be omitted, the separate requirements of notice to all shareholders and the consent of all shareholders that reporting is unnecessary must be met, apart from the omission of the resolution (Article 320 of the Companies Act).

When a written resolution is passed, the company is obliged to keep the shareholders' consent documents or electromagnetic records at its head office for ten years from the date on which the resolution is deemed to have been passed (Article 319(2) of the Companies Act). Omitting the meeting does not exempt the company from the obligation to keep statutory records.

Preparing and Keeping Minutes

Whether the meeting is actually held or a written resolution is chosen, preparing and keeping minutes is mandatory (Article 318(1) of the Companies Act and Article 72 of the Ordinance for Enforcement of the Companies Act). Even for a written resolution, minutes satisfying the required contents for a deemed resolution must be prepared and kept, separately from keeping the consent documents. As a rule, the original minutes are kept at the head office for ten years from the date of the meeting (for a deemed resolution, the date on which the resolution is deemed to have been passed), and copies are kept at branch offices for five years. A company that prepares minutes as electromagnetic records and has taken measures enabling branch offices to respond to inspection and other requests as prescribed by law can omit keeping copies at branch offices.

Shareholders and company creditors can request to inspect and copy the minutes at any time during business hours. Members of a parent company can also request inspection and copying with the court's permission when necessary to exercise their rights. At the time of preparation, check the progress and results of the resolutions recorded in the minutes against the actual proceedings and consent records. For matters resolved at the meeting that involve changes to registered matters, a registration application will be filed.

The approach to speeding up meeting procedures is covered in How Far Can You Shorten a Shareholders' Meeting Schedule Under the Companies Act?. The design of resolutions where an issuance of preferred shares is involved is organized in Procedures for Issuing Preferred Shares: From Amending the Articles and Class Shareholders' Meetings to Registration and Closing, so please see that article as well if you want to review fundraising and meeting management together.

Procedures relating to company management after outside shareholders join, from meeting preparation to organizing the officer structure, are covered by our Startup Legal Services. The records to keep after the meeting are covered in How to Prepare Minutes of Shareholders' Meetings and Board of Directors Meetings, and the timing of officer re-elections in Directors' Terms, Re-election Registration, Resignation and Removal. If you want to entrust routine administrative work such as sending convocation notices and preparing minutes on an ongoing basis, we also handle this through Legal Outsourcing.