When a company is incorporated and begins operating its business, corporate officers such as directors play a central role in management. However, in practice, it is not uncommon for people to overlook (i) the difference between general titles such as “President” or “CEO” and a “director” under the Companies Act, (ii) the legal duties and liabilities imposed on officers, and (iii) the risk of penalties arising from late filings when an officer’s term expires. This article explains key rules and practical points under Japanese company law relating to corporate officers.

１．What Is a Director?

Under the Companies Act, a “director” is a statutory corporate officer of a Kabushiki-Kaisha who, among other functions, makes decisions regarding business execution (Companies Act, Article 326 and related provisions). The relationship between the company and a director is treated as a mandate under the Civil Code. By contrast, titles such as “President,” “CEO (Chief Executive Officer),” or “Chairperson” are merely internal designations and do not have a defined legal meaning under the Companies Act.

２．Roles and Legal Responsibilities of Directors

(1) Practical Meaning of the Duty of Care and Duty of Loyalty

Directors owe the company a duty to perform their duties with the care of a prudent manager (Companies Act, Article 330; Civil Code, Article 644). Directors must also faithfully perform their duties for the benefit of the company (Companies Act, Article 355).

(2) How Officer Compensation Is Determined

To prevent officers from setting their own compensation at an unreasonably high level, if the articles of incorporation do not provide otherwise, the total amount of officer compensation must be determined by a resolution of the general meeting of shareholders (Companies Act, Article 361). In practice, it is common for the shareholders’ meeting to approve only the total cap, and for the specific allocation to be determined by the board of directors (or delegated to the representative director).

３．Term of Office and the Risk of Late Filings

As a general rule, the term of office is two years for directors and four years for company auditors (Companies Act, Articles 332 and 336). However, for a non-public (closed) company where all issued shares are subject to transfer restrictions (i.e., a Private Company / Company with Restrictions on Transfer of Shares (Jouto-seigen-kaisha)), the term can be extended up to ten years if so provided in the articles of incorporation. If an officer continues to serve after the term expires (reappointment), the company must file a registration of reappointment within two weeks (Companies Act, Article 915(1)). If the company fails to file in a timely manner, the court may impose a civil fine (non-criminal penalty) of up to JPY 1,000,000 (Companies Act, Article 976(1)). In practice, when the delay continues for several years, fines in the range of tens of thousands to more than one hundred thousand yen may be imposed.

４．Authority of Representative Directors and Multiple Appointments

(1) Representative Director vs. Ordinary Director

A representative director has authority to perform all judicial and non-judicial acts relating to the company’s business (Companies Act, Article 349(4)). By contrast, an ordinary director without representative authority does not have authority to bind the company by acting on its behalf. When doing business with a Japanese company, even if the counterparty’s business card says “CEO” or “President,” that does not necessarily mean the person has legal representative authority.

(2) Where There Are Multiple Representative Directors

A company may appoint multiple representative directors. In that case, each representative director generally has authority to represent the company individually (Companies Act, Article 349). While multiple representatives may be appointed to divide responsibilities, it is important to be aware of the risk that conflicting agreements could be entered into internally because each representative director can execute contracts on their own.

５．Points to Note When Appointing Foreign Directors

There is no legal issue with appointing foreign nationals as directors or representative directors. However, if all representative directors reside overseas, this often becomes a significant practical obstacle when opening a corporate bank account with a Japanese financial institution.

６．Conclusion

Under Japanese company law, the director and officer regime entails strict duties and procedures, including shareholder approvals and timely registrations. It is important to verify representative authority by checking registrations rather than relying on titles such as “CEO,” and to consider practical issues such as bank account opening when appointing foreign officers, keeping both legal rules and business realities in mind.

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