Holding of the Ordinary General Meeting of Shareholders
Unless otherwise indicated, this topic is intended for our major clients, the companies which are neither Companies with an Audit and Supervisory Committee, nor Company with a Nominating Committee, etc., nor Large Companies.
The most basic decision-making body of a Stock Company is a shareholders’ meeting. The shareholders’ meeting is a structure or a place where shareholders, the owners of the company, make decisions on fundamental and important matters of the company. There are two types of shareholders’ meetings: an ordinary shareholders’ meeting and an extraordinary shareholders’ meeting. An extraordinary shareholders’ meeting may be held at any time when necessary (Article 296, Paragraph 2 of the Companies Act), while an ordinary shareholders’ meeting must be held at a certain time after the end of each fiscal year (Article 296, Paragraph 1 of the Companies Act). Normally, the Articles of Incorporation stipulate that the ordinary shareholders’ meeting be held within three months after the end of each fiscal year because of the relationship between the tax return and the record date (Article 124, Paragraph 1 of the Companies Act).
The ordinary shareholders’ meeting must be held. This is because the directors, who are entrusted with the management of a Stock Company by its shareholders, are required to report to the shareholders the results of their business operations for each fiscal year, or to obtain their approval.
To be precise, a Stock Company must prepare financial statements (a balance sheet, profit and loss statement, etc.), business report, and their supplementary schedules for each business year (Article 435, Paragraph 2 of the Companies Act).
The directors are then required to submit the financial statements and business report to the ordinary general meeting of shareholders to report on the contents of the business report, and to obtain shareholders’ approval for the financial statements (Article 438 of the same). In the case of a Company with Company Auditor(s), the financial statements, business report and their supplementary schedules must be audited by the company auditor(s) prior to submission to the ordinary general meeting of shareholders.
There are some cases where a Stock Company that is a wholly owned subsidiary of a foreign corporation files a tax return without holding an ordinary shareholders’ meeting. Even in this case, it is not possible for the directors of the subsidiary to prepare the business report and financial statements on their own. In practice, the parent company’s management should have received the business report and reviewed the financial statements prepared by the subsidiary.
Nevertheless, the above procedures, which are stipulated in the Companies Act, cannot be omitted. The business report and financial statements must be submitted to the ordinary general meeting of shareholders for reporting or approval.
On the other hand, it seems nonsense for a Stock Company that is a wholly owned subsidiary of a foreign corporation to hold a shareholders’ meeting every time. Therefore, the Companies Act also provides a method to omit a resolution of a general shareholders’ meeting and deem that a resolution of a general shareholders’ meeting has been passed (Article 319, Paragraph 1 of the Companies Act). This method will ensure compliance with the Companies Act.
In the case of a Stock Company whose fiscal year ends at the end of December, it should start preparing for the ordinary shareholders’ meeting to be held in February or March once January rolls. If it is the time for election of director(s) or company auditor(s), preparations should be made for appointment of the successor(s). There may also be a proposal for dividends of surplus.
For general procedures for the ordinary general meeting of shareholders and consideration of proposals, please contact us on an individual basis.