Commercial Code and Companies Act: Governance, Directors, and Shareholders
This section covers the Commercial Code and Companies Act, focusing on corporate governance, directors, and shareholders. The exam tests entity choice, board authority, director duties, shareholder rights, and liability. The Commercial Code still supplies supplementary rules for commercial transactions and company matters.
Core rules
- A kabushiki kaisha (KK) issues shares; a gōdō kaisha (GK) has membership interests. The Companies Act governs incorporation, organs, accounts, and reorganizations.
- Shareholders elect directors at the general meeting. Boards manage significant matters and supervise directors; auditors or committees monitor. Directors owe duties of loyalty and good faith and must avoid conflicts of interest.
- Interested-director transactions require board approval and disclosure. Directors can be liable for breach, and shareholders may bring a derivative action after demand.
- Shareholders have rights to dividends, information, and appraisal in certain major transactions. Minority protections exist, but not every business decision is reviewable if made with reasonable process.
Worked example
A director causes the company to buy goods from a company he owns without board approval at an inflated price. The transaction is a conflict-of-interest transaction. The director may be liable for the excess profit and damages. A shareholder can demand that the company sue; if it refuses, the shareholder may file a derivative suit. Business judgment does not protect self-dealing without approval and fair terms.
Traps
Do not assume shareholders run daily management. Do not confuse a director's liability to the company with liability to creditors. Do not overlook board approval, disclosure, and fair-price evidence. Derivative action procedure and demand requirements are commonly tested.