Law of Incorporated Companies in Japan

The current Japanese law for incorporated companies was enacted on May 1, 2006, This lead to a revision of substantial fundamental factors in Japanese corporate law. 1998.

New key factors are:

1) Corporate body

Under the old corporation law, a corporation included a president, board of directors, and an auditor. According to the new law a company can now have various executive structures depending on the purpose of business.

Officers were introduced to be monitored by external board of directors.

Although,acompany can have the conventional type of structure with a president, directors, a board of directors and auditor(s) different executive structures have been added to be more aligned with global business structures.
Under the new law, the corporation can have committees such as a nomination committee, a compensation committee and an audit committee, besides the board of directors. However, a company with an audit committee cannot have an auditor similar to US company law.

2) Securities (Equity?) Companies can sell a variety of shares as a poison pill to avoid corporate raiders and for other financial needs.

The new law has allowed a company to purchase its own shares with some limitations. limitation.

It has enabled companies to obtain/maintain the management control, issue new shares, control the share price or carry out M&A more effectively and efficiently.

3) M&A: . The procedures to increase capital and to expediate corporate mergers have been improved by share exchange.

.For a foreign company X to acquire company Y in Japan, company X can establish a company in Japan to absorb company Y as a merger. By exchanging the shares of company X and company Y as a Triangular Merger via the new company, X can acquire Y.

Special Features of Japanese Companies:

1.Japanese Companies

Corporations are the most common entities. In 2005, Japan made the new Company Act of Japan, which abolished the first Company Law that was established in 1899.
There are two types of corporations, one needs consent from the board of directors in order to transfer shares, whereas the other the shares can be publicly traded as with listed companies.
In addition to corporations there are also Limited Liability Companies (LLC) and Limited Liability Partnerships (LLP). Both can avoid double corporate income taxation.

2. Establishing a corporation. The following rules must be met.

  • The founder may be one person
  • Must be notarized by a public notary
  • In case of a public corporation the issuance of shares must not exceed four times of the shares outstanding.
  • Capital: No minimum requirement, even just one yen is sufficient
  • Location: Head office must be in Japan
  • Investment in kind: Court appointed authorities will assess the value of assets. Foreign companies with branches in Japan that are incorporating in Japan will be required to go through the same process.
●Property Underwriting:

Although, it is unnecessary for court appointed fiduciary inspection, the following rules must be met.
Regarding assets of high value there needs to be an agreement to acquire the prior assets in order to avoid latent liability.
Two thirds of the shareholders must agree in order to obtain more than one fifth of a corporation, which has been operating within two years.
If these conditions are not met the contract becomes invalid.
This rule is important to keep in mind when forming an M&A.
In a privately–held company (close company) the founders must hold all of the stock, on the other hand a public company the shares can be transferred to investors other than the founder.

Kaneko Hirohito Law Office
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