Month: August 2026

１．The Importance of Establishing a Compliance Framework

Japan’s Companies Act requires “large companies” to establish internal control systems. However, compliance is not important for large companies alone. Even for small and medium-sized enterprises (SMEs), failure to put compliance and internal controls in place can give rise to serious risks for the company.

The same applies to SMEs that are under no obligation to establish an internal control system and to foreign-affiliated companies that have only just entered Japan; if anything, companies whose frameworks are not yet in place tend to see risks materialize more readily. For foreign companies in particular, because of differences in culture, business customs, and legal systems, “things that were never a problem in the home country” are apt to become major risks in Japan. This article explains, topic by topic, the minimum points you should have covered.

 

２．Specific Examples of Compliance Items Requiring Attention

(1) Tax and accounting management

Tax and accounting tend to be put off in the period just after incorporation, but if sales expand while management remains sloppy, at some point the company may suddenly be found—in an investigation by the Regional Taxation Bureau or (where the company imports or exports) Customs—to have failed to report income and the like, and may be assessed substantial additional taxes. Having a retained lawyer and a licensed tax accountant involved from the time of incorporation, while sales are still small, and getting the basics in order, will help contain major risks and costs in the future.

 

(2)  Management of trade secrets (removal by departing employees)

Cases in which customer information or technology and know-how are taken out by departing employees never cease.

Under Japan’s Unfair Competition Prevention Act, for information to be legally protected as a “trade secret,” it must, among other requirements, be kept and managed as a secret (the “confidentiality management” requirement); unless the information is properly managed on a day-to-day basis, no legal protection will be available even if it is taken out. Measures such as executing NDAs and written undertakings (at the time of hiring and at the time of departure), applying “confidential” markings and limiting access rights, and confirming the return of data upon departure are important.

 

(3) Management of contractors (the Subcontract Act / the new Freelance Act)

When outsourcing work to outside parties, attention must be paid to the laws that regulate transactions with contractors. The so-called Subcontract Act prohibits reducing agreed fees, delaying payment, “beating down” prices, and the like; it was amended and renamed in January 2026 and is now the “Toriteki Act” (Act on the Optimization of Transactions with Small and Medium-sized Entrusted Business Operators), under which the regulations have been strengthened.

In addition, the new Freelance Act, which came into force in November 2024, requires—with respect to work entrusted to individuals (“specified entrusted business operators”)—that the terms of the transaction be clearly set out and that remuneration be paid by the due date (in principle, within 60 days); because it has no capital-amount threshold, it can apply even to small-scale businesses.

Violations carry the risk of guidance or recommendations from the Japan Fair Trade Commission and other authorities and of the company’s name being made public (published cases have also been increasing in recent years), so companies are expected to put their contracts, written orders, and payment terms in proper order.

 

(4) Harassment measures

In Japan, under the amended Act on Comprehensively Advancing Labor Measures (the “Power Harassment Prevention Act”; its obligations were extended to SMEs as well from April 2022), companies are required to take measures to prevent harassment. What requires attention is that conduct once not recognized as harassment in Japan has in recent years come to be regarded as such, and acts done without any ill intent by officers or employees of foreign companies can still lead to disputes. The following are typical examples peculiar to Japan.

Example ①  Pressuring people to attend drinking parties or to drink (alcohol harassment):  De facto compelling attendance at social gatherings, or the pouring of drinks and drinking, and rating anyone who declines as “lacking a spirit of cooperation.” Once tolerated as “nominication” (socializing over drinks), this can now constitute harassment.

Example ②  Remarks about marriage, childbirth, and the like (sexual harassment / maternity harassment):  Repeatedly saying to an unmarried employee things like “Isn’t it about time you got married?”, or assuming that the employee will quit sooner or later and assigning them only simple tasks. Even where the speaker intends it as “being considerate,” such conduct can constitute harassment.

 

In both cases the actor often has no ill intent; in Japan, however, great weight is placed on how the conduct is received by the employee. The risks are wide-ranging: (i) labor disputes citing harassment are by no means rare, and if an employee turns to the Labour Standards Inspection Office or the Labour Bureau, the company will be compelled to deal with the authorities; (ii) dismissing an employee who has complained of harassment at the company’s convenience is readily found unlawful as disadvantageous treatment, making dismissal all the more difficult; (iii) if the problem is left unaddressed, not only the company but also its directors personally may be held liable in damages for breach of their duty of care as prudent managers (zenkan chui gimu); and (iv) an outflow of talent and difficulty in recruiting caused by word of mouth can also result.

Japanese companies generally take measures such as expressly setting out prohibited conduct in their work rules and harassment-prevention regulations, establishing consultation (whistle-blowing) contact points, conducting regular training, and putting in place procedures for fact-finding investigations and the prevention of recurrence

 

(5) Anti-social forces checks

“Anti-social forces” refers to organized crime groups (boryokudan), persons affiliated with them, and the like. In Japan, each prefecture has enacted an “Organized Crime Group Exclusion Ordinance,” pressing forward with the exclusion of anti-social forces. In many cases, these ordinances require      business operators, on a best-efforts basis, to include an anti-social forces clause when concluding a contract.

Against this background, confirming at the time of contracting that the counterparty is not an anti-social force (an “anti-social forces check”) and including an anti-social forces clause in the contract have become standard practice regardless of company size. The clause may look unfamiliar to foreign companies, but when a contract is concluded with a Japanese company, this clause is almost invariably inserted.

 

３． Conclusion

The point that “neglecting internal controls leads to serious risks” is not someone else’s problem for SMEs or for foreign-affiliated companies that have just entered Japan. When starting a business in Japan, we strongly recommend consulting lawyers, licensed tax accountants, and other professionals at an early stage and putting the necessary internal control framework in place.

 

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In our Japan Business Law Guide, we will continue to share useful information tosupport your business expansion and operations in Japan.
If you have any questions or would like advice on a specific matter, please feelfree to contact us at our firm’s Contact Email.

 

　AZ MORE International Law Firm

General meetings of shareholders and board meetings in a Japanese Kabushiki Kaisha involve a number of Japan-specific rules and practices. In addition, recent digitalization has led to changes in related systems and market practice, including electronic provision of materials for general meetings of shareholders and practical arrangements assuming online participation. This article outlines the basic rules for general meetings of shareholders and board meetings, as well as practical points for online formats.

 

１．Annual General Meeting of Shareholders

A Japanese Kabushiki Kaisha must convene an annual general meeting of shareholders after the end of each fiscal year, within a certain period. Under the Companies Act, there is no express rule stating that the meeting must be held “within three months after the fiscal year end.” However, in practice, many companies provide in their articles of incorporation that the annual general meeting must be held within three months after the fiscal year end (financial year end). As a result, for a company with a March 31 fiscal year end, it is common to hold the annual general meeting in June, whereas for a company with a December 31 fiscal year end, it is often held in March. The specific timing depends on each company’s fiscal year and its articles of incorporation.

At the annual general meeting of shareholders, the company typically (i) approves or reports on the financial statements for the fiscal year, (ii) appoints directors, company auditors, and other officers, and (iii) resolves on dividends of surplus and other matters required by the Companies Act or the articles of incorporation.

	Company with March 31 fiscal year end	Company with December 31 fiscal year end
Fiscal year end (financial year end)	March 31	December 31
Timing of annual general meeting	By the end of June	By the end of March

 

２．Matters Resolved by the Shareholders’ Meeting and the Board of Directors

(1) Matters Resolved by the Shareholders’ Meeting (Where a Board of Directors Is Established)

Although the shareholders’ meeting is the company’s ultimate decision-making body, where a board of directors is established, the shareholders’ meeting cannot resolve on any matter at its discretion. In such cases, the matters that may be resolved by the shareholders’ meeting are limited to those specified in the Companies Act or the articles of incorporation—typically matters relating to the company’s fundamental structure. Examples include the appointment of officers, amendments to the articles of incorporation, and appropriation of surplus.

 

(2) Matters Resolved by the Board of Directors

Important management decisions must be resolved by the board of directors. While day-to-day operations may be executed and represented by the representative director acting alone, decisions on “the execution of important operations” may not be delegated to individual directors (Companies Act, Article 362(4)). Typical examples include disposal or acquisition of important assets, large borrowings, significant personnel or organizational changes, and development of an internal control system.

 

３．Meeting Formats for Shareholders’ Meetings and Board Meetings

As a general rule, both shareholders’ meetings and board meetings are held with shareholders and directors physically attending. However, online participation has increasingly been adopted in practice, and relevant procedures and operational arrangements have been developed.

 

(1) Online Participation in Shareholders’ Meetings

Under Japanese law, a shareholders’ meeting generally must be convened by specifying a physical “place.” Accordingly, an unlisted company cannot hold a fully online shareholders’ meeting. In practice, however, a hybrid shareholders’ meeting is possible: the company designates a physical venue while allowing shareholders to participate online.

When holding a hybrid shareholders’ meeting, the company should plan in advance matters such as the communications environment, identity verification, how to handle questions and motions, handling of voting procedures, the scope of streaming, and consideration of image rights and privacy.

 

(2) Online Board Meetings and Other Formats

Directors are appointed by the shareholders’ meeting based on personal trust. Therefore, unlike shareholders’ meetings, directors may not attend a board meeting by proxy.

At the same time, directors may be located remotely, making in-person attendance difficult. This raises the practical question of whether board meetings may be held by online or similar means.

General rule	Directors convene and attend in person.
Exception 1 (Online meeting)	An online meeting with real-time audio and video is permitted.
Exception 2 (Teleconference)	A teleconference raises issues such as difficulty identifying speakers because participants cannot see each other. However, if the participants can be authenticated and each director can immediately recognize the others’ statements and engage in sufficient discussion, it may be treated as a valid board meeting.
Exception 3 (Written resolution)	If the articles of incorporation provide for it, a resolution may be deemed adopted without holding a board meeting by obtaining unanimous consent of all directors in writing or by electronic record. If the company has company auditors, it is also necessary that the company auditors do not object.

 

４．Rules for Preparing Minutes of Shareholders’ Meetings

When a shareholders’ meeting is held, the company must prepare minutes under the Companies Act. The minutes typically include the date and place of the meeting, the proceedings and results of resolutions, the names of attending officers, the name of the chairperson, and the name of the director responsible for preparing the minutes.

In addition, if directors, company auditors, accounting advisors, accounting auditors, and similar persons express certain opinions or make statements at a shareholders’ meeting, a summary must also be recorded in the minutes.

Are Minutes in English Valid?

The Companies Act does not prescribe the language of minutes of shareholders’ meetings. Accordingly, minutes may be prepared in English or another foreign language. However, in practice, procedures before the Legal Affairs Bureau, courts, and tax authorities generally assume Japanese. For this reason, it is advisable to treat the Japanese version as the original and prepare any foreign-language version as a translation.

For reference, it is possible to prepare a bilingual Japanese–English version of articles of incorporation; however, only the Japanese text has legal effect, and Japanese will prevail in the event of any inconsistency (see SERIES 2-03: What Are Articles of Incorporation?).

 

５．Conclusion

The Companies Act sets out detailed rules regarding the authority and procedures of shareholders’ meetings and board meetings. If a company exceeds its authority or makes procedural errors, it may face litigation risk from shareholders and others. It is therefore advisable to operate the company carefully, including consulting professionals as needed.

In addition, both shareholders’ meetings and board meetings have increasingly been held in online and similar formats as digitalization advances. If you manage a company in Japan or participate in a Japanese company as a shareholder, it is important to understand the benefits and risks of these mechanisms accurately.

 

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Contact Us

In our Japan Business Law Guide, we will continue to share useful information tosupport your business expansion and operations in Japan.
If you have any questions or would like advice on a specific matter, please feelfree to contact us at our firm’s Contact Email.

 

　AZ MORE International Law Firm