JAPAN Law and Practice Contributed by: Akira Matsushita and Hideki Ben, Mori Hamada
to dismiss that director is rejected at a general share- holders’ meeting, a shareholder holding 3% or more of the votes of all shareholders or 3% or more of the out- standing shares for at least the preceding six months may demand dismissal of that director by filing an action with the court within 30 days from the general shareholders’ meeting (Article 854 of the Companies Act); this holding period requirement does not apply to shareholders of a private company. 6.2 Challenging a Decision Taken by Directors Shareholders who are dissatisfied with a decision or action taken by directors or the board of directors may take action to remove the relevant directors, as dis- cussed in 6.1 Rights to Appoint and Remove Direc- tors . Also, as discussed in 10.2 Remedies Against the Directors , a shareholder who meets certain require- ments may: • file to enjoin a director’s illegal actions; • bring a derivative action to recover damages and liabilities caused by the company’s directors due to a violation of their duty of care and loyalty to the company; and • directly claim damages arising out of actions con- ducted in bad faith or with gross negligence in the performance of directors’ duties. In addition, if there are sufficient grounds to suspect misconduct or material facts regarding violation of laws and regulations or the articles of incorporation in connection with the execution of the operations of the company, a shareholder with 3% or more of the votes of all shareholders or with 3% or more of out- standing shares may file a petition for the appointment of an inspector with the court, in order to have the inspector investigate the status of the operations and the financial status of the company (Article 358 of the Companies Act). 6.3 Rights to Appoint and Remove Auditors As with an appointment or removal of directors, share- holders who are eligible to submit shareholder pro- posals may submit a shareholder proposal to appoint a person as a statutory auditor or remove an incum- bent statutory auditor. The voting requirement for the
appointment of a statutory auditor is the same as for the appointment of a director, and the voting require- ment for the dismissal of a statutory auditor is the same as the requirement for an extraordinary resolu- tion. The action for dismissal described in 6.1 Rights to Appoint and Remove Directors is also available for the dismissal of a statutory auditor. Some large companies appoint accounting auditors that are usually external accounting firms. Sharehold- ers who are eligible to submit shareholder proposals may submit a shareholder proposal to appoint a per- son as an accounting auditor or remove an incum- bent accounting auditor. The voting requirement for the appointment or dismissal of an accounting auditor is the same as the requirement for an ordinary resolu - tion. A statutory auditor or an accounting auditor who is dismissed is entitled to claim from the company dam- ages arising from the dismissal, except where there are justifiable grounds for that dismissal. Companies need to describe certain matters con- cerning their corporate governance in their business reports, which are reported at their annual general shareholders’ meetings. Listed companies are also required to state their corporate governance arrange- ments in their annual security reports and corporate governance reports, both of which are required to be available to the public through the internet. The amendment to the Cabinet Office Order on Dis- closure of Corporate Affairs, which came into force in April 2024, provides that after 1 April 2025 certain material agreements entered into between a listed company and its shareholders will need to be dis- closed in an annual security report or extraordinary report of such listed company. Such material agree- ments include: • agreements between a listed company and its shareholders regarding nomination of candidates 7. Corporate Governance Arrangements 7.1 Duty to Report
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