Glossary of Japanese Corporate and Commercial Law Terms

Introduction

Japanese corporate and commercial law underwent a fundamental transformation with the enactment of the Companies Act (Kaisha Hō, Act No. 86 of 2005), which consolidated and modernised the corporate provisions of the Commercial Code (Shōhō). The glossary below covers the key terms of corporate structure, governance, finance, and transactions.

Kaisha Hō (会社法)

Kaisha Hō — the Companies Act — is the primary legislation governing corporations in Japan, effective from 1 May 2006. It superseded Book II of the Commercial Code and introduced a more flexible framework for corporate organisation, including simplified procedures for mergers, demergers, and share exchanges.

Kabushiki Kaisha (KK, 株式会社)

Kabushiki Kaisha — a stock company — is the dominant corporate form in Japan, analogous to the public limited company or société anonyme. The KK is a limited-liability entity in which equity is divided into shares. It may be publicly listed (jōjō kaisha) or closely held. The Companies Act distinguishes between large KK (dai-kibo KK), medium KK (chū-kibo KK), and small KK (shō-kibo KK) for regulatory purposes.

Gōdō Kaisha (GK, 合同会社)

Gōdō Kaisha — a limited liability company — is a corporate form introduced by the Companies Act, analogous to the US LLC or the German GmbH. The GK is a limited-liability entity with flexible governance (no board of directors or statutory auditor required) and is treated as a pass-through entity for tax purposes unless it elects otherwise.

Gōshi Kaisha (合資会社)

Gōshi Kaisha — a limited partnership — is a corporate form in which some partners have unlimited liability and others have limited liability. The gōshi kaisha is a residual category from the Commercial Code and is rarely used in practice.

Gōmei Kaisha (合名会社)

Gōmei Kaisha — an unlimited partnership — is a corporate form in which all partners have joint and unlimited liability for the obligations of the entity. Like the gōshi kaisha, it is a relic of the pre-2005 regime and has largely fallen into disuse.

Torishimariyaku (取締役)

Torishimariyaku — a director — is a member of the board of directors. Directors owe fiduciary duties of care (chūi gimu) and loyalty (chūjitsu gimu) to the company. The term of office is generally one year for large KK and up to ten years for small KK.

Kansayaku (監査役)

Kansayaku — a statutory auditor — is a corporate officer responsible for auditing the management’s performance of its duties. The kansayaku system is unique to Japan. In companies with a board of statutory auditors (kansayaku-kai), the auditors have the power to attend board meetings, demand reports from directors, and investigate the company’s affairs.

Shihon (資本)

Shihon — stated capital — is the amount of capital that a company discloses in its incorporation registration. The Companies Act requires a minimum stated capital of ¥1 for KK and GK. The concept of shihon is important for the maintenance-of-capital rules, including restrictions on dividends and share buybacks.

Kabushiki (株式)

Kabushiki — a share — is a unit of equity in a kabushiki kaisha. Shares may have different classes (shurui kabushiki) with varying rights as to dividends, voting, and liquidation preferences. The Companies Act permits a broad range of class shares, including tracking stock and shares with veto rights.

Kabunushi (株主)

Kabunushi — a shareholder — is the holder of one or more shares in a KK. Shareholders exercise their rights at the general meeting of shareholders (kabunushi sōkai). Major shareholders may also exercise appraisal rights (kabushiki kaitori seikyū-ken) in the event of certain fundamental transactions.

Torishimariyaku Kai (取締役会)

Torishimariyaku Kai — the board of directors — is the governing body of a KK. The board determines the company’s strategy and supervises the directors. Large KK must have a board of at least three directors. The board may delegate management authority to representative directors (shachō).

Shachō (社長)

Shachō — a representative director — is the director authorised to represent the company vis-à-vis third parties. The board of directors selects one or more representative directors from among its members. The shachō is typically the chief executive officer of the company.

Toppō Kainyū (代表訴訟)

Toppō Kainyū — a derivative action — is a lawsuit brought by a shareholder on behalf of the company against a director (or former director) for breach of duty. Derivative actions are governed by Articles 847–853 of the Companies Act. Japan has a notably active derivative-action bar, with many challenges to directors’ business judgments.

M&A (M&A)

M&A — mergers and acquisitions — encompasses a range of corporate reorganisation mechanisms under the Companies Act, including absorption mergers (kyūshū gappei), consolidation mergers (shinsetsu gappei), demergers (kaisha bunkatsu), share exchanges (kabushiki kōkan), and share transfers (kabushiki iten).

Kabushiki Kōkan (株式交換)

Kabushiki Kōkan — a share exchange — is a transaction by which a company becomes a wholly owned subsidiary of another company by exchanging its shares for shares of the parent. The procedure requires a special resolution of the shareholders of each company.

Kabushiki Iten (株式移転)

Kabushiki Iten — a share transfer — is a transaction by which one or more companies transfer all of their shares to a newly formed company, making the existing companies wholly owned subsidiaries of the new entity. This is the mechanism for creating a holding company structure.

Sōki Hensai (早期弁済)

Sōki Hensai — a short-form merger — is a simplified merger procedure available when the parent company holds at least 90% of the shares of the subsidiary. The procedure does not require a shareholder resolution of the parent or the subsidiary.

Kabushiki Mōshikomi-ken (株式申込権)

Kabushiki Mōshikomi-ken — a stock acquisition right (shin-kabu yoyaku-ken) — is the right to subscribe for shares of a company at a predetermined price. The Companies Act introduced a comprehensive framework for stock acquisition rights in 2001, which are widely used for employee stock options and equity-linked financing.

Shasai (社債)

Shasai — bonds — are debt securities issued by a KK. The issuance of bonds is governed by the Companies Act and the Financial Instruments and Exchange Act. Bonds may be secured (tanpo tsuki shasai) or unsecured, and may be convertible into shares (tenshakan shasai) or linked to stock acquisition rights.

Keiretsu (系列)

Keiretsu — a corporate group — is a set of companies with interlocking shareholdings, business relationships, and often common lending arrangements with a main bank. The keiretsu structure was a defining feature of post-war Japanese capitalism, though its importance has declined in the 21st century.

Shintaku (信託)

Shintaku — a trust — is a legal relationship in which a trustee holds assets for the benefit of a beneficiary. The Trust Act (Shintaku Hō, 2006) modernised Japanese trust law, introducing the express trust, the charitable trust, and the business trust. Trusts are widely used in asset securitisation, real estate finance, and estate planning.

Shōhō (商法)

Shōhō — the Commercial Code — is the older commercial statute, enacted in 1899. Before 2005, it contained the primary corporate law provisions (Book II). Since the Companies Act, the Commercial Code retains provisions on commercial registration, commercial books, and general commercial transactions.

Fu-sei Kyōsō Bōshi Hō (不正競争防止法)

Fu-sei Kyōsō Bōshi Hō — the Unfair Competition Prevention Act — prohibits acts of unfair competition, including misappropriation of trade secrets, passing-off, dilution of well-known marks, and false advertising. The Act was substantially revised in 2015 and 2019 to address digital trade secrets and extraterritorial conduct.

Kigyō Tōchi (企業統治)

Kigyō Tōchi — corporate governance — is the framework of rules and practices by which a company is directed and controlled. Japan’s Corporate Governance Code (2015, revised 2018 and 2021) applies to all listed companies on a “comply-or-explain” basis. The Code addresses board composition, shareholder rights, disclosure, and the role of independent directors.

Yūka Shōken Hōkokusho (有価証券報告書)

Yūka Shōken Hōkokusho — a securities report — is the annual disclosure document required of listed companies under the Financial Instruments and Exchange Act. The securities report contains audited financial statements, management discussion and analysis, and information on corporate governance. It is filed with the Prime Minister and made publicly available.