JAPAN Law and Practice Contributed by: Akira Matsushita and Hideki Ben, Mori Hamada
sellers of the shares, any executives who performed such buyback and certain relevant persons are jointly and severally liable to the company for payment of monies in an amount equivalent to the book value of the monies and any other assets delivered to the sell - ers, provided that the executives and relevant persons will not be liable if they prove that they did not fail to exercise due care with respect to the performance of their duties (Article 462 of the Companies Act). Furthermore, if the distributable amount in a financial statement as of the end of the fiscal year in which the buyback is carried out is a negative number, the executives who performed the buyback are jointly and severally liable to the company for the payment of the smaller of the absolute value of the negative amount or the amount paid to the sellers, unless the execu- tives prove that they did not fail to exercise due care with respect to the performance of their duties (Article 465 of the Companies Act). As a general rule, a company may distribute dividends to shareholders by obtaining a resolution of its general shareholders’ meeting. A company may distribute div- idends only once during a business year by a resolu- tion of the board if the company has a board of direc- tors and the articles of incorporation provide for such a distribution. Also, if a company has an accounting auditor, and if the term of office of directors other than directors who are audit and supervisory committee members is one year, the articles of incorporation may set provisions to allow the board the authority to decide on the distribution of dividends, and may take away such authority from the general shareholders’ meeting on the condition that the accounting auditor opines that the financial statements of the last busi- ness year are accurate and appropriate. The Companies Act does not explicitly restrict the timing of the distribution of dividends. Usually, com- panies pay the distribution to shareholders promptly after they obtain a resolution for the distribution. 5. Dividends 5.1 Payments of Dividends
Under the Companies Act, the amount of the dis- tribution of dividends must be within the distribut - able amount at the time of the effective date of such distribution. The distributable amount is calculated based on the amount of the company’s surplus, and the details of how to calculate it are provided by the Companies Act and the Regulations on Corporate Accounting. 6. Shareholders’ Rights as Regards Directors and Auditors 6.1 Rights to Appoint and Remove Directors Shareholders who are eligible to submit shareholder proposals may submit, to directors of a company, a shareholder proposal to appoint a person as a director or to remove an incumbent director. If this proposal is approved at a general shareholders’ meeting, the per- son will be appointed as a director or the incumbent director will be removed. In principle, the voting requirement for the appoint- ment or dismissal of directors is the same as that for an ordinary resolution, provided that the quorum can- not be reduced to less than one third of shareholders eligible to vote at a general shareholders’ meeting. In a company with an audit and supervisory committee, however, the dismissal of a director who is an audit and supervisory committee member must be resolved by an extraordinary resolution. A company may increase the voting requirement for the appointment or dismissal of directors from a majority of votes of shareholders present at a general shareholders’ meeting with a quorum by setting forth those increased requirements in the company’s arti- cles of incorporation, although an increase for such dismissals is often strongly criticised by shareholders (particularly institutional investors). A director who is dismissed is entitled to claim damages arising from the dismissal from the company, except in cases where there are justifiable grounds for dismissal. If, notwithstanding the presence of misconduct or material facts showing violation of laws and regula- tions or the articles of incorporation in connection with the execution of the duties of a director, a proposal
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