Duties of Directors②

Roles of directors of a company WITHOUT a Bord of Directors

(a) When there is more than one director, “decisions regarding the execution of the operations of the Company” are made by a majority decision of the directors.
*If there is only one director, he/she makes the decisions.

(b) Each director has the authority to “execute the operations of the Company”.

(c) Unless otherwise the Articles of Incorporation or a general meeting of shareholders designate a representative director, “all directors have the right to represent the company in principle”.

Roles of directors of a company WITH a Bord of Directors*

(a) Decisions regarding the execution of the operations of the Company are made by resolution of a Bord of Directors.

(b) All directors have duties of “supervising the execution of the duties” by directors

(c) A Bord of Directors selects and dismisses representative directors.

*In principle, the establishment of a Bord of Directors of a private company is optional.

【 Skip to the conclusion 】

“All Directors have the right of representation”

For a company WITHOUT Board of Directors, all Directors have the right to represent the company unless otherwise a specific Representative director is elected (i) by a majorities of decision of directors, (ii) by a resolution of the general meeting of shareholders, or (iii) by stipulating in the Articles of Incorporation.

In above case, Representative Directors A and B each have an authority to execute business as a Director and the right to represent the company as a Representative Director. In other word, this companies have two persons who can conclude contracts on behalf of the company. (For more information on the difference between the “authority to execute business” and the “authority to represent the company”, please refer to the previous article)

However, having more than one Representative Director may cause confusions in corporate management and operation. (Please imagine the situation when there are two bosses for one employee.) Also, the more people authorized to represent the company, the greater the risk that they will enter into contracts with outside parties for their own benefit. Therefore, it is advisable to have one Representative Director to be elected and in practice, where in fact most of Japanese companies do only have one Representative Director.

Incidentally, there are some companies (e.g., companies dealing with real estate brokage business, etc.) that have more than one Representative Director  because there is a need of affixing the corporate seal to the registration documents several times a day.

*Only one corporate seal per Representative Director is permissible to register to the Legal Affairs Bureau. If there are two Representative Directors, two seals with different impressions can be registered to the Legal Affairs Bureau.

On the other hand, for a company WITH a Board of Directors must elect a Representative Director. It is permissible to elect more than one Representative Directors; however, for the same reason as above, it is advisable to avoid electing multiple Representative Directors as much as possible.

Directors’ “Obligation to Monitor and Supervise the Execution of Duties(*1)

For a company with a Board of Directors(*2), each director (including ordinary directors who do not have the authority to execute business operations) is obligated to monitor each other’s performance of duties and supervise each other to ensure that there is no misconduct or violations of laws, regulations and the Articles of Incorporation.

*1 The term “execution of duties” is used in a broader sense than “execution of the operations”. In other words, not only the execution of duties decided by the Board of Directors (or by a decision of majorities of Directors), but also the company’s overall business operations or business management systems that are conducted without the directors’ approval are subject to such supervision.

*2 Although the text of the Companies Act only refers to companies with a Board of Directors, it is interpreted that directors of companies without a Board of Directors also have the same obligations.

Specifically, the following actions need to be taken.

(a) To receive reports on the status of execution of duties from Representative Directors and Executive Directors at least once in every three months. (This reporting process is mandatory under the Japanese Companies Act, and only submitting written reports to all directors are not considered to be fulfilling their duties.)

(b) To object or express an opposition to proposals at meetings of the Board of Directors , when such proposals are considered to be inappropriate or to be violating laws, regulations, or the Articles of Incorporation.

(c) To ask questions and seek explanations regarding countermeasures if any risks are foreseen with respect to the proposal.

(d) To propose a resolution to dismiss a Representative Director in case when he/ she is considered to be inappropriate to represent the company

(e) To convene a meeting of the Board of Directors by himself/herself if the meeting is not held at an appropriate time

(f) Report to shareholders (or auditors, if any) if he/ she discovers any fact likely to cause substantial detriment to the company.

Conclusion

• Company without Board of Directors are not mandatory to elect Representative Director, and in case when none of Representative Director is elected, all Directors will automatically become Representative Director.
  However, it is recommended to elect one Representative Director in aspect of avoiding confusion and risk management

• For Company with Board of Directors, one or more Representative Director must be elected.
  However, it is recommended to elect one Representative Director for the same reason as above.

• This supervisory duty includes not only passive actions such as raising objections at meetings, but also active actions such as convening a board meeting by oneself if the representative director or executive director does not hold a board meeting at the appropriate time.

MK@ 05/12/2022