What is an Executive Manager

When a foreign entity (“the foreign company”) incorporates a Kabushiki-Kaisha (join stock company) in Japan, it can be a shareholder, but cannot be a director or representative director.

On the other hand, when a Godo-Kaisha (limited liability company) is established, even the foreign company can become an executive partner or a representative partner (*). In such cases, it is required to appoint at least one executive manager (person) and notify their name and address to other partners.

* The business purpose of the foreign company must be related to the business matters of the incorporated Godo-Kaisha to some extent.

* “Partnership” stipulated in Civil Code 667, Limited Partnership for Investment (LPS), and Limited Liability Partnership (LLP) cannot be partners of Godo-Kaisham since those are not considered to have juridical personality in Japan.

The executive manager shall be appointed at the foreign company’s executive organs (e.g., the board of directors, etc.). Such an appointment is required, even if the representative of the foreign company himself/herself becomes an executive manager.

Role of an Executive Manager

Even though a foreign company is legally allowed to be an officer of the Godo-Kaisha, the person who actually performs the duties of the corporation must be an appointed. Also, it is not realistic to assume that the representative of the foreign company must fulfill this role, and if the representative is unable to move quickly, the operation of the company will be hindered. Therefore, the Companies Act requires that a specific person who performs business acts for the foreign corporation shall be appointed.

Qualifications of an Executive Manager

The Companies Act does not have any limitation on the qualifications of an executive manager. Therefore, the executive managers are not limited to the company’s own officers and employees, but can also include outside experts, such as lawyers. However, since the executive manager will have comprehensive, rather than individual, authority over the Godo-Kaisha, the selection of personnel should be done carefully.

Responsibilities of an Executive Manager

　Under the Companies Act, the following rules of responsibility for executive partners apply mutatis mutandis to the executive managers. In the event that an executive manager, who repeatedly engages in inappropriate conduct, is appointed, the Godo-Kaisha needs to urge the foreign company to re-appoint a new executive manager or dismiss such foreign company from the position of executive officer.

Duty of care
Duty of loyalty
Duty to report the status, progress, and results of the execution of duties at the request of the partners.
Obligation to deliver money, etc. received
Obligation to pay expenses in advance or request reimbursement of expenses
Obligation to prohibit competition
Restrictions on conflict-of-interest transactions
Joint and several liability for damages to the Godo-Kiasha for negligence in the performance of duties
Joint and several liability for damages to third parties in the event of malicious intent or gross negligence in the performance of duties

Division of Roles of the Executive Manager and the Representative of the Foreign Company

The appointment of an executive manager is only required when the foreign company is an executive partner, and there is no such obligation of appointment if it is an ordinary partner. Therefore, in principle, the acts that can be performed by an executive manager are limited to those that can only be performed by an executive partner (e.g., decision-making and execution of business), while other acts that can be performed by an ordinary partner (e.g., consent to changes in the articles of incorporation) are to be performed by the representative of the foreign company.

Thus, please note that the involvement of the representative of the foreign company is not completely unnecessary.

MK@ 09/04/2022