Law of Incorporated Companies in Japan

Special Features of Japanese Companies:

3. Stock Shares

*According to the rule shares are not issued and remain as certificates until the shares are transferred, at this time the shares become issued.

*All are no-par value stock

*Setting the type of stock
In the process of incorporation the type of stock can be set.
Preferred stock and Junior Stock: Dividends and assets are distributed, and Preferred Stock and Junior Stock are differentiated.
Shares with restricted voting rights: No voting rights for some and sometimes all of the shareholders.
Shares with put option: Shareholders can demand acquisition of shares.
Shares subject to call: If conditions are met the company is forced to be turned over to the shareholders
Shares subject to class-wide call: The Company can obtain all the shares in this class determined by a shareholder meeting.
Vetoed class shares: Shareholders, Board of Directors, Liquidation authorities can reject the resolution.

*The company depending upon the range of possible dividends can acquire Treasury Stock in accordance to the rule.

*When determining voting rights it is based on one vote per one unit and one unit being a certain number of shares.If less than one unit there are no voting rights given.

4.Shareholders’ Meeting

Resolutions set by the Board of Directors are valid, not by the General Assembly.

Call for meeting summons the Board of Directors

Three out of a hundred shareholders with voting rights can request for a call of assembly to the Board of Directors. After eight week of filing the claim the shareholders can assemble with court approval.

One out of a hundred voting rights can ask the General Assembly for an agenda if not convened within eight weeks in a Publicly-Held Company.

Voting is either one share one vote or one unit one vote.

Usually, the majority vote prevails or two-thirds of the votes for a special resolution. Special resolutions would consist of either/or M&A, company division, and other important matters.

5.Board of Directors

Whether to install a Board of Directors is up to the company. The Board of Directors shall consist of three or more people.
The Board of Directors shall be appointed in the shareholders’meeting.
The Board of Directors shall serve for two years.
In a privately-held company the term may be ten years.
The Board of Directors shall appoint the Chief Executive Officer.

Duty to refrain from competition: When the CEO is a representative director from another company; the CEO shall consult with the Board of Directors or shareholders regarding business operations.
Conflict of interest Acts: The directors shall consult the Board of Directors or shareholders when there is not a Board of directors, regarding debt or conflict of interest.
Compensation and retirement benefits shall be decided by the shareholders during the shareholders meeting.

Listed companies can appoint an outside director.

The shareholder meeting can agree to dismiss obligations, in which there is no justifiable resolution.
The shareholders can seek litigation for damages caused by negligence.

6.Auditors

A company with a board of directors must have auditors, whereas a privately-held company without a board of directors is not obligated to have auditors.
There may be one auditor or a Board of Corporate Auditors consisting of three or more people.
The term is for four years and ten years in a privately–held company.
Their compensation shall be decided by the shareholders.
Their duties are to audit, however in privately-held companies their duties can be limited.
The Board of Directors will be held liable for malicious or gross negligence.

7.Committees

The committees consist of the Board of Directors, Auditors, Nominating committee, Audit committee, and the Compensation Committee. In a privately-held company the auditors cannot be elected.
These committees can be delegated to appoint executive officers and significantly determine the path of business.
Executive officers and directors can be overlapped consisting of management, board of directors and supervisory authority.
Furthermore, and outside directors committee consisting of three or more people can be installed.
However, keep in mind that the Board of Directors cannot overturn the decision of the Nominating Committee nor the Compensation Committee.
The term for theses board of directors and executive officers is under one year.

8.Accounting

Large and companies with committees must have an accounting auditor, in which financial statements and business report approvals are made during the shareholders’ meeting. Determinations of dividends are reported during the shareholders’meeting as well.
These accountants do their usual duties within one year.
The board of directors and the committees can also handle matters relating to dividends.

9.Funding

Treasury Stock Sale
Stock shareholders allocation
Third party allotment of new shares can be issued by special resolution of shareholders’meeting.
In a public company the board of directors issues a resolution, especially when the price is suitable and issued by special resolution in a shareholders’ meeting.
Public offering of stock soliciting, underwriting for unspecified number of people.
A listed company can try a new public offering. The market value being slightly higher than the sum.
Issuance of bonds and debentures.

10.Amendment of articles of incorporation

Special resolution of the shareholders’meeting.
With prior notice the shareholders’may oppose at the General Assembly dissenting shareholder demand for purchase of shares and their appraisal rights.

11.Corporate Realignment

Merger:
Shareholder demand for the purchase of shares and their stock acquisition and appraisal rights must be considered. Furthermore, creditors objection proceedings for collateral repayment must be addressed and prove that this merger will have no risk of loss.

Corporate Divestiture:
Absorbing the newly established division.
Objection concerning the employees

And stock exchange :
For example, company A is a parent company therefore all of A and B’s shareholders shared have to be transferred to company A, leading to opposition from dissenting shareholders and creditors.

Stock Transfer:
Newly established company A is the parent company shares from B and A will be transferred.

Business Transfer:
Transferring more than one-fifth of the assets requires special resolution of the shareholders’meeting.

12. Foreign companies without subsidiaries in Japan doing business in Japan

Must have a representative in Japan with an address in Japan.
Once a representative address is established in Japan, it can be regarded as a place for sales although you do not establish a business office.
When closing business in Japan the creditors must be notified by public notice.

Kaneko Hirohito Law Office
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