BYE BYE YUGEN KAISHA & OTHER CORPORATE REFORM
KEYWORDS: CORPORATE LAW, LIMITED LIABILITY, YUGEN KAISHA, BANKRUPTCY, SHARE BUYBACKS

A new revision to the Commercial Code went into effect in early 2004 whereby boards of directors will be free to buy back company shares without the approval of the shareholders meeting, so long as the article of incorporation are so amended. Previously, the directors each year had to get an allotment for a year approved in advance by the shareholders meetings.

Japan plans to have in effect by 2006 a major revision of corporate law by revising the Commercial Code. One of the main objectives is to abolish the old yugen kaisha companies and replacing it with a new one. Existing yugen kaisha would be permitted to continue in existence. A newer more simplified form of limited liability company would be established. This would be modeled on the US limited liability company system. The articles of incorporation are more flexible in the areas of voting power and dividends.

Due to the relative success of the temporary one yen company system provided for five years, the government will also be dropping permanently the minimum capital requirements of 10 million yen. The number of the one yen companies had topped 15,000 by August, 2004.

Smaller corporations (capital under 500 million yen) are also expected to enjoy eased regulations on number of directors and auditors, maybe not being required at all. So await the results in 2005.

The bankruptcy law will also be revised to give priority to employee interests. Unpaid wages will now be given priority over taxes and social security payments. Bankrupts will also be able to keep 990,000 yen instead of the 660,000 in cash, previously permitted.
A new system is also planned for the expedited dissolution of companies with a negative net worth.

In shareholders lawsuits, one proposal is that shareholders would not be able to sue when shareholders improperly seek profits for themselves, or when the suits filed with the intent of damaging the company. Also suits would be banned when the resulting burden to the company is great and the company’s legitimate profits would be damaged.
 

Copyright 2005. All rights reserved Attorney Roderick H. Seeman

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