On April 2, Japan’s Ministry of Justice proposed a series of reforms to Japan’s Corporate Law and initiated a public comment period. The proposed changes are expected to be submitted to the Diet early next year, with most provisions likely to take effect in 2028.
The package, exceeding 130 pages in length, addresses a wide range of topics. While many of the proposed changes are technical and designed to streamline corporate procedures, several proposals could also alter the balance between efficiency and shareholder protection. The following are key proposed changes that could materially affect institutional investors.
1. Shareholder proposals
Due to a sharp increase in the number of shareholder proposals, business lobbies have long advocated for stricter requirements. Indeed, the number of companies receiving shareholder proposals and the total number of proposals have more than doubled over the past five years, reaching 132 companies with 532 proposals in 2025. Current law requires a minimum holding of 30,000 shares for six months to submit up to ten shareholder proposals. The proposed amendments would raise the minimum eligibility requirement to either A) 1 percent of voting rights, or B) 50,000, 100,000 or 150,000 shares. As the current holding requirement of 30,000 shares is typically valued at USD 200,000 to USD 1,000,000 (or JPY 30–150 million), it allows individual shareholders to submit proposals. If option A is adopted, it would effectively preclude individual shareholders from submitting proposals. The quality of proposals submitted by individual shareholders varies considerably, ranging from well-constructed governance proposals such as those concerning individual executive compensation disclosure requirements, to proposals intended to defame executives.
In addition, earlier submission deadlines for shareholder proposals—from the current eight weeks before meetings to ten weeks, or even three months—are also under consideration. Business groups argue that insufficient time is allocated for companies to respond to shareholder proposals, as proxy materials have been required to be released three weeks before meetings since 2022, an extension from the previous two-week period.
2. Beneficial shareholder identification and voting rights suspensions
The draft includes two changes that make it easier for issuers to identify beneficial shareholders. First, the proposals introduce a beneficial shareholder identification system similar to the EU’s SRD II, requiring both local and global custodians to provide issuers with information regarding beneficial shareholders.
Separately, the draft seeks to authorize companies to suspend voting rights for beneficial shareholders who fail to comply with large shareholding reporting regulations. These reports are currently required from beneficial shareholders holding five percent or more of a company’s shares; however, current regulatory resources are insufficient to hold violators of the rules accountable.
Unlike other proposed changes, beneficial shareholder identification system, which necessitates significant system enhancements by custodians, may require several additional years for implementation.
3. Annual report (Yuho) and proxy materials
Some non-Japan-based institutional investors have requested that the Yuho, Japan’s most comprehensive annual report, be published prior to annual shareholder meetings. Current proxy materials include the Jigyo Hokoku, another form of annual report, but some stakeholders argue that it lacks important information. The proposed amendments would allow the Yuho and Jigyo Hokoku to be combined into a single document.
Disclosure requirements for Japanese listed companies are currently defined by three distinct sets of rules, Corporate Law (governing proxy materials including the Jigyo Hokoku), the Financial Instruments and Exchange Act (governing the Yuho), and Listing Rules. These regulations are fragmented and not well coordinated. The amendments are intended to reduce companies’ disclosure burden.
As the advance disclosure of the Yuho necessitates additional changes to current practices, including alterations to the record date system and the treatment of final dividends, the practical impact of this amendment regarding shareholder meeting-related disclosures and timing remains to be seen.
4. Committee authority at companies with a three-committee board structure
Japanese companies employing board with a three-committee structure, also known as a U.S.-style board structure, have legally binding committees. This structure is currently adopted by three percent of listed companies, primarily by blue chip companies. Current law grants the nomination and compensation committees the authority to nominate directors and determine the compensation of directors and officers, a decision that cannot be overturned even by the full board. This rule was established under the assumption that, even among companies with a three-committee board structure, the board would not be majority independent. However, more than 80 percent of these companies now have a majority-outsider board.
Critics of this clause point to the overly strong authority vested in the nomination committee. As the CEO commonly serves on the board, this effectively grants the nomination committee the ‘de facto’ authority to nominate and remove the CEO. These critics argue this is a primary reason why Japanese companies have not widely adopted this structure. The proposed amendment will allow the full board to modify decisions made by the nomination and compensation committees, provided the board is comprised of majority outsiders.
A requirement to disclose committee composition in proxy materials following the meeting, specifically for companies with a three-committee structure is currently under discussion. Notably, the current regulations do not mandate the disclosure of committee composition post-meeting and approximately one-fourth of such companies have failed to include this information in their proxy materials.
5. Requiring shareholder votes on executive equity plans
The current law only requires director equity compensation plans to be put to a shareholder vote. Non-director executive and employee equity plans are subject to such a vote solely when deemed “favorable”. The draft proposal questions whether equity plans for executives and employees should also require a shareholder approval. Currently, director equity plans are typically put to a vote upon their introduction or when material changes are made; the revised rules would extend this practice to executive and employee equity plans as well.
6. Streamlining squeeze-out procedures by controlling shareholders
The current regulations permit controlling shareholders to squeeze out minority shareholders without a shareholder vote only when the controlling shareholders hold 90 percent or more of the shares. With the proposed changes, if the controlling shareholders succeed in acquiring more than two-thirds of the shares via a tender offer and if a majority of minority shareholders have tendered their shares, the controlling shareholders will be permitted to squeeze out all remaining shareholders without a shareholder vote. It is important to note that if the controlling shareholders hold more than two-thirds of the voting rights, the squeeze-out proposal will pass even with the support of only the controlling shareholders. Shareholders who object to the squeeze-out will retain the right of dissent and may challenge the fairness of the squeeze-out pricing in court, with or without the shareholder vote.
7. Other changes affecting shareholder rights
Additional changes proposed in the package include facilitation of “virtual-only” shareholder meetings, potential removal of the right of dissent on certain M&A transactions, and alterations to shareholder meeting procedures allowing for the determination of meeting outcomes based on electronic voting and mailed proxy cards prior to the meeting date.
Public comments on the draft must be submitted in Japanese, with a deadline of May 22 (Japan time). The extent to which these proposed changes will be implemented remains uncertain, as business groups, investors, stakeholders and academics hold differing views and have not yet reached consensus on some of the issues.
ISS will continue to monitor these developments and provide updates on Corporate Law and other Japanese regulatory updates affecting institutional investors.
Authored By
Taketoshi Yoshikawa
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