The Ultimate Guide: Everything You Need to Know About Director Changes in Japan

Changing directors in Japan involves navigating a complex legal landscape that affects all types of companies, whether it’s a Kabushiki Kaisha (KK), Godo Kaisha (GK), or other business forms. Compliance with Japanese corporate law and proper documentation are essential to ensure a smooth transition. Here’s a breakdown of the key steps to make the process seamless and fully compliant.

Understanding Director Roles and Legal Requirements

Regardless of the company structure, it’s important to review your current governance framework to determine whether a representative director (daihyo-torishimari-yaku) is required. The representative director is responsible for legal and business dealings on behalf of the company. Additionally, if there are outside directors (shagai-torishimari-yaku), keep in mind that they are restricted from being executive directors or employees of the company or its subsidiaries.

If your company operates with a board of directors, there must be at least three directors. However, certain structures, such as private KK or GK, may function without a board of directors, offering flexibility for smaller operations. Regardless, it is essential to ensure that any changes in directorship comply with both internal governance documents and Japanese corporate law.

Crucial Filing Deadlines with the Legal Affairs Bureau

Once the decision to appoint or remove a director has been approved, either through a general shareholders’ resolution or a board of directors’ meeting, the company must notify the Legal Affairs Bureau within two weeks. Filing within this window is mandatory to avoid penalties, which could be as high as JPY 1,000,000 for delays. While the Legal Affairs Bureau often processes late filings without major issues, it’s essential to adhere to the two-week deadline to minimize risk.

The effective date of the director change is another critical aspect. This can be the date specified in the resolution or, if not specified, the date the resolution was passed. Missing this detail can cause confusion and delays when meeting the filing deadlines.

Board Meetings and Written Resolutions

Companies with a board must hold regular board meetings, at least once every three months, to address significant decisions such as directorial changes. The majority vote of the directors is typically required to pass these resolutions. Alternatively, written resolutions are permitted if all directors unanimously agree, provided the articles of incorporation allow for this flexibility. This can be especially helpful for companies looking to streamline decision-making without a formal meeting.

Documentation and Compliance Are Critical

For both voluntary resignations and dismissals, proper documentation is indispensable. This includes a formal resignation letter from the outgoing director, minutes from the shareholders’ meeting approving the change, and if applicable, minutes from the board of directors’ meeting. The resignation or removal will not be legally recognized until it is officially registered with the Legal Affairs Bureau.

For new directors, ensure that they submit an acceptance letter and provide key personal information like ID copies, proof of address, and a specimen signature for company records and regulatory filings. Directors who leave without proper documentation risk leaving gaps in the company’s governance that could affect compliance in the future.

Director Liabilities and Responsibilities

Outgoing directors can still face legal liabilities after their departure, especially if the dismissal was without just cause. In cases of dismissal without a valid reason, such as gross misconduct, the outgoing director may claim damages from the company. This compensation typically covers remuneration for the remainder of their term.

Furthermore, directors are responsible for managing the company’s business with duty of care and loyalty. Their liabilities include any breaches of duty that occurred during their tenure, and they can be held personally liable if they are found to have engaged in actions that resulted in losses for the company. Proper documentation, including opposition recorded in board meeting minutes, can help protect directors from future claims.

Update the Shareholder Registry

After the shareholders pass a resolution to change directors, it is necessary to update the company’s official corporate records, including the shareholder registry. For companies that have opted to register their Ultimate Beneficial Owners (UBO), any directorial changes that impact significant control over the company must also be updated in the UBO registry. Failure to do so could result in penalties and damage the company’s transparency and governance.

Avoid Penalties with Timely Filing

Late filings may trigger fines, but more critically, they could impact the company’s legal standing. The two-week deadline imposed by the Japanese Companies Act ensures that all directorial changes are reported promptly to the Legal Affairs Bureau. Filing beyond this deadline risks fines of up to JPY 1,000,000, and in some cases, can lead to complications with future filings.

Ensuring the timely and correct filing of all necessary documents will help companies maintain their compliance with Japanese law and avoid unnecessary penalties.

For those looking to perfect their approach to Annual General Meetings (AGMs) in various jurisdictions, Klea offers unparalleled expertise. Our comprehensive internal article, Mastering Due Diligence: Key Steps You Need To Secure Investments, provides deep insights. With extensive experience in multiple jurisdictions, Klea is uniquely positioned to help you navigate AGM requirements internationally, ensuring compliance and fostering success across borders.