This content is from: Local Insights

Japan

At present, the joint stock company (kabushiki kaisha) and the limited liability company (yugen kaisha) are the two corporate forms most common in Japan. Though the joint stock company form was intended for large and public companies and the limited liability company form was for smaller closely held companies, many closely held companies use the more prestigious joint stock company form even though it is more strictly regulated.

In October 2003, the Ministry of Justice proposed that closely held joint stock companies should be regulated in a more flexible manner, similar to that of limited liability companies. It proposed a draft outline to amend the Commercial Code providing that all closely held companies be subject to uniform regulation regardless of the corporate form. The outline provides that closely held joint stock companies may have no board of directors and flexible terms of office of directors, and that the current restriction on matters that may be determined at a shareholders' meeting of a joint stock company be lifted for closely held joint stock companies.

The proposal also recommends that closely held joint stock companies be allowed to have a sole director, no corporate auditors, and be able to restrict the qualification of directors to shareholders. The Ministry considers that the right to receive dividends and vote at shareholders' meeting should be allowed to vary depending on shareholder type, if that is provided in the articles of incorporation. The Ministry also considers that no limit should be placed on the number of limited voting shares of closely held joint stock companies. At present this is limited to half the number of all outstanding shares.

The outline also advocates a more flexible mechanism for the transfer of shares of a closely held joint stock company. At present, any transfer of shares of a closely held joint stock company is subject to board approval. The outline questions whether shares can be transferred among shareholders without such approval.

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