2026-07-07 12:36:26 Japan Business Law Guide
SERIES 2-05: Shareholders and Share Management
After incorporating a Kabushiki-Kaisha in Japan, how must the company handle its shareholders and shares under the Companies Act? As explained earlier, by holding shares, shareholders have three fundamental rights: (i) voting rights, (ii) the right to receive dividends, and (iii) the right to receive residual assets upon liquidation (see SERIES 2-01: The Structure and Essential Legal Aspects of a Kabushiki-Kaisha).
To enable shareholders to exercise these rights, and to ensure that the company properly manages its shares, the Companies Act provides the rules outlined below.
１．Types of Shares in a Japanese Kabushiki-Kaisha
A Kabushiki-Kaisha must treat shareholders equally in accordance with the content and number of shares they hold. At the same time, by providing for it in the articles of incorporation, a company may issue different classes of shares with different terms, such as differences in dividends, distributions of residual assets, voting rights restrictions, and restrictions on share transfers. Below is an overview of typical share classes and why they are used.
|
Shares |
Description |
Purpose |
|
Preferred shares |
Shares that entitle the holder to receive dividends and/or distributions of residual assets in priority over other shares. |
– May be issued to secure investor returns. |
|
Deferred shares |
Shares that entitle the holder to receive dividends and/or distributions of residual assets only after other shares. |
Often issued, for example, when persons with a special relationship to the company subscribe for shares in connection with corporate restructuring. |
|
Non-voting (or restricted voting) shares |
Shares for which voting rights are restricted for certain matters. A Kabushiki-Kaisha may issue shares with different scopes of voting rights, for example, shares with no voting rights at all, or shares that have voting rights only for specified matters. |
– May be used to raise funds from outside investors without granting voting rights. |
|
Shares with transfer restrictions |
A company may issue shares that require the company’s approval for a transferee to acquire the shares by transfer. A company whose articles of incorporation provide for such approval is referred to as a Private Company / Company with Restrictions on Transfer of Shares (Jouto-seigen-kaisha), and many Japanese small and medium-sized companies fall into this category. |
Issued to stabilize the shareholder base. |
２．Basics of Capital Increases and Issuance of New Shares
As a company grows its business, it may need to raise additional capital. The basic procedure for increasing capital by issuing new shares is as follows.
|
Procedure |
Explanation |
|
Procedure for issuing new shares |
In a public company (a company where there are no restrictions on the transfer of all or part of its issued shares), the issuance of new shares can, in principle, be authorized by a resolution of the Board of Directors.
In a non-public (closed) company (a company that restricts the transfer of all its issued shares), a special resolution of the general meeting of shareholders—requiring a two-thirds majority—is necessary in order to protect the rights of existing shareholders to maintain their ownership ratios. |
３．Practical Points When a Foreign Investor Acquires Shares
Even if an investor acquires shares in a Japanese company, the acquirer cannot automatically assert shareholder status against the company. The acquirer must request that the company record the acquirer as a shareholder in the shareholder register (Kabunushi-meibo). The procedure differs depending on whether the shares are subject to transfer restrictions, as outlined below.
|
Type of shares |
Procedure |
|
Where the shares have no transfer restrictions |
(1) Acquisition of shares |
|
Where the shares are subject to transfer restrictions |
(1) and (2): Same as above. If rejected: the process shifts to a buyout procedure where the company or a person designated by the company purchases the shares. |
In addition, the following points should be noted when acquiring shares in a Japanese company.
- Stock certificate non-issuance principle (Kabuken-fu-hakkou): Under current Japanese law, as a general rule, a company does not issue share certificates unless its articles of incorporation provide otherwise. Issuance of share certificates is extremely rare in practice.
- Non-public nature of shareholder information: As a general rule, information on who the shareholders are does not appear in the commercial register or the articles of incorporation. The shareholder register (Kabunushi-meibo) is also not publicly available. Therefore, in practice, it is generally very difficult for third parties to investigate shareholder information of a Japanese company.
- Notifications under the Foreign Exchange and Foreign Trade Act: When a foreign investor acquires shares in a Japanese company, notifications may be required under the Foreign Exchange and Foreign Trade Act (see SERIES 1-02: Process and Schedule Up to Company Incorporation).
４．Conclusion
Under the Companies Act, a company may issue various types of shares as needed. In practice, however, many small and medium-sized Japanese companies issue shares with transfer restrictions in order to protect existing shareholders’ ownership ratios and maintain a stable shareholder base. As a result, procedures for issuing new shares and updating the shareholder register can be subject to rules that differ from those applicable to a Public Company (Koukai-kaisha). It is also important to understand Japan-specific features, such as the general non-public nature of shareholder information.
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