2003 JAPAN LAW: COMMERCIAL CODE REVISION
Keywords: Commercial Code, Corporate Law, bonds, dividends, auditors, paid-up-capital
Copyright 2004. All rights reserved Attorney Roderick H. Seeman
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The major revision of the Commercial Code that took effect in April 2003 reduced the quorum requirement for general shareholders and permits the establishment of compensation, audit and nomination committees to assist the Board of Directors in many ways modeled on the US system. More than half of the members of the nomination committee, which will submit candidates for directors to the shareholders meeting for approval, must themselves be outside directors. The committee system is optional and there is no general requirement for outside directors.

The proposed revision of the Commercial Code for 2005 would require only the approval of the representative director to issue bonds so long as the board in advance sets out the maximum interest rates and amount to be redeemed and the minimum size of the issue. With respect to dividends, the board alone could decide on the timing and amount of such dividend payments so long as this is spelled out in the articles of incorporations.  Presently these activities require the approval of the shareholders. With respect to capital reserves, the distinction between legal earned surplus and legal capital surplus will be dropped. Corporations would be able to acquire/merge with subsidiaries in which they own 90% or more of the shares of the subsidiary, without requiring the approval of the shareholders meetings of the subsidiary and without having to give notice of such a shareholders meetings. Revisions would also make it much easier to establish stock corporations (kabushiki gaisha) and limited liability companies (yugen gaisha). Instead of a minimum paid up capital of 10 million yen for stock corporations or 3 million yen for limited liability companies, it is likely that both will either be reduced to 1 million yen or simply dropped altogether. For small and medium-sized firms not listed on stock exchanges it is felt that it is not necessary to impose all the requirements for large public companies. Thus no auditors will be required for these firms and only one director will be sufficient. In order to ease the acquisition of Japanese firms by foreign corporations, compensation for the Japanese shareholders may take the form of cash or shares of the parent company.