Question from a reader:
I have a question about corporate law. Could you explain the legal effect of a provision in the articles of incorporation that limits the qualifications for a proxy of voting rights to shareholders? Also, I would like to know what basis there is for criticizing that precedent. Thank you!

On the Provisions of Articles of Incorporation Regarding Proxy
Qualifications for Shareholders and Their Legal Effect

Hello everyone! Today, I will attempt to answer a somewhat difficult question regarding corporate law. Specifically, let’s consider the provision in the articles of incorporation that limits the qualifications for a proxy of voting rights to shareholders, as well as the judicial interpretations and points of criticism regarding this. As someone who works in the entertainment industry, I often encounter legal hurdles, and I never tire of discussing such topics.

What is the qualification for a proxy of voting rights?

First, let me briefly explain the qualification for a proxy of voting rights. At a shareholders’ meeting, shareholders can exercise their rights as shareholders, but there are times when they cannot attend in person, such as when they are busy or live far away. In such cases, they can appoint a proxy to exercise their voting rights on their behalf. The issue arises when there is a provision in the articles of incorporation stating, “The proxy for voting rights is limited to shareholders.” In this case, individuals who are not shareholders, such as close friends or legal professionals, cannot act as proxies. Some may find this a bit inconvenient, right?

Judicial Interpretation

In Japanese case law, there are references to provisions regarding the qualification for proxies of voting rights. For example, the Supreme Court has taken the position that if there is such a provision in the articles of incorporation, its legal effect is generally recognized. In other words, it is stated that individuals who are not shareholders cannot act as proxies. The background of this precedent is the idea that it is important for shareholders to exercise their voting rights based on their own will. There is a principle that the intentions of shareholders should be directly reflected, thus requiring the exercise of voting rights in accordance with the articles of incorporation.

Criticism of this Precedent

Now that we have deepened our understanding of the precedent, what is important here is the criticism of this precedent. I believe that limiting the proxy qualification to shareholders is quite a significant restriction. Especially in modern society, where there are diverse lifestyles and ways of working, more flexible responses are needed. First of all, the proxy for voting rights not only represents the shareholder’s intentions but can also be conducted by a proxy with specialized knowledge, potentially leading to more beneficial decisions for the shareholder. For instance, if a shareholder is not involved in the company’s operations at all, delegating the proxy to an expert could facilitate better decision-making. Next, I also question the flexibility of corporate law itself. The current legal framework has been built over many years based on various cases, but it seems to lag in adapting to the evolution of technology and changes in business models. With the prevalence of remote meetings and online shareholders’ meetings, it seems that the law has not kept pace with the ability for shareholders to exercise their voting rights even if they cannot physically attend.

Considering the Situation

From my personal experience, I believe such situations can indeed occur. For example, suppose my friend is a shareholder in a startup. He has a busy job and doesn’t have time to attend the shareholders’ meeting. He wanted to ask a business-savvy friend to act as his proxy, but he faced the dilemma that he could not do so due to the provisions of the articles of incorporation. In the end, his valuable opinion was not reflected, and important decisions for the company were made without his input. In this way, the restriction on the shareholder’s right to represent themselves directly impacts the shareholders themselves. I feel that the law should evolve more in this regard and respond flexibly to the times.

Conclusion

We have considered the judicial interpretation and criticism of the provision in the articles of incorporation that limits the qualifications for proxies of voting rights to shareholders. Whether the legal framework aligns with the needs of the times should always be a topic of discussion, and I hope we can look forward to the evolution of the law while feeling the necessity for it. Ultimately, accurately reflecting the intentions of shareholders is crucial for the growth of companies, and for that, the law should also be flexible. This topic has plenty of room for discussion, and I would like to continue pursuing it, so please feel free to share your opinions!