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Company Law of South Korea Essays

 Jusik Hoesa (Stock Company) Jusik Hoesa is the only form of corporate entity that is allowed to publicly issue shares. The vast majority of corporations in Korea chose the Jusik Hoesa corporate form. It is also the most common corporate form that foreign companies chose for their subsidiaries. 2. Yuhan Hoesa (Limited Liability Company) Yunhan Hoesa is a closely held company that is prohibited from having more than 50 shareholders. In recent years a few foreign companies have chosen the Yuhan Hoesa, however, most foreign companies are advised and will form a Jusik Haesa.
A few companies, recently, have chosen this form because of possible U. S. tax benefits. 3. Hapja Hoesa (Limited Partnership) In a Hapja Hoesa one or more partners may have unlimited liability and one or more partners may maintain limited liability. The entity, as all incorporated entities, is responsible for corporate taxes. 4. Hapmyeong Hoesa (Partnership) In a Hapmyeong Hoesa two or more partners form the partnership. The partners must maintain unlimited liability. The entity, as all incorporated entities, is responsible for corporate taxes. . What is the legal system (civil law, common law or a mixture of both)? Historically, the laws of South Korea were influenced by the European civil law system. US laws have influenced more recent legislation. Registration formalities The following activities, among others, must be completed to incorporate a joint stock company: * Draft the articles of incorporation (articles). * Subscription of shares by the promoter(s) and other subscriber(s). * Payment of subscription money. Investigation by the directors and auditors into whether the incorporation has complied with applicable laws and the articles, and investigation by the appointed inspector or appraisers into whether any elements of abnormal incorporation, such as promoters’ special benefits, contribution in kind and transferred property in advance, have been duly assessed and dealt with in accordance with the law. * Electing director(s) and corporate auditor(s). * Registration of the incorporation at a competent commercial registry.
A business registration certificate from the local tax office must then be obtained. Rights attaching to shares Restrictions on rights attaching to shares. Restrictions on rights attaching to shares will be detailed in the articles and can include restrictions on: * Voting rights. * Rights to a dividend. * Rights to receive a distribution of assets on liquidation. * Rights of redemption and conversion. In addition, the voting rights of shares where the shareholder holds more than 3% of the total outstanding voting shares are restricted in the election of corporate auditor(s).
The transfer of shares may be subject to an approval of the board of directors in accordance with the articles. Automatic rights attaching to shares. Unless otherwise provided by the articles, shares contain automatic rights to: * Receive a dividend. * Vote at a meeting of shareholders. * Receive remaining assets upon liquidation. However, certain shareholder’s rights may only be enforceable once a certain percentage of the share capital is owned, for example the right to: * Call a shareholders’ meeting. Propose agenda items at a shareholders’ meeting. * File derivative claims against directors and corporate auditors. * Demand the removal of a director. * Inspect accounts. Management structure A company must have at least three directors, including one representative director and an in-house statutory auditor, unless the company has a total capital of less than KRW1 billion (as at 1 November 2011, US$1 was about KRW1,109), in which case there only needs to be one or two directors (Commercial Code). Management restrictions
There are no nationality restrictions on directors or managers. Directors’ and officers’ liability Directors have a fiduciary duty to the company, therefore if a director violates the company’s articles or applicable laws, or negligently fails to fulfil his duties, he will be jointly and severally liable to the company (and, in some cases, to a third party), together with any director who directly or indirectly approved the violating act, and must indemnify the company. Transfer of shares ‘In principle, Korean law allows shareholders to freely transfer the shares.
However the commercial act of Korea provides a company with a way to restrict the transfer, via including a provision in the relevant articles of incorporation that requires any shareholder to acquire prior written approval from the board of Directors. SECTION 1 Incorporation Article 288 (Promoters) In order to incorporate a stock company, the promoters shall prepare the articles of incorporation. [This Article Wholly Amended by Act No. 6488, Jul. 24, 2001] Article 289 (Preparation of Articles of Incorporation, Absolute Particulars to be Entered Therein) 1) The promoters shall prepare the articles of incorporation and enter the following particulars therein, and each of them shall write his name and affix his seal or sign on it: <Amended by Act No. 3724, Apr. 10, 1984; Act No. 5053, Dec. 29, 1995; Act No. 6488, Jul. 24, 2001> 1. Purpose; 2. Trade name; 3. Total number of shares authorized to be issued; 4. Par value per share; 5. Number of shares to be issued at the time of incorporation; 6. Place of principal office; 7. Method of public notice; 8. Name, residence registration number and address of each promoter; and 9.
Deleted. <by Act No. 3724, Apr. 10, 1984> (2) The number of shares to be issued at the time of incorporation shall be no less than a fourth of the total number of shares authorized to be issued by the company. <Amended by Act No. 3724, Apr. 10, 1984> (3) Public notices by a company shall be given by inserting them in the Gazette or in a daily newspaper in which matters relating to current events are published. Article 290 (Particulars of Abnormal Incorporation) The following matters shall be effective by being stated in the articles of incorporation: 1.
Any special benefits to be received by promoters and names of such promoters; 2. Name of the person who is to make a contribution in kind, the type quantity and value of the subject-matter of such contribution in kind and the class and number of shares to be given in consideration thereof; 3. The class, number and value of the property which was agreed to be transferred to the company after its incorporation and the name of the transferor; and 4. The expenses for incorporation which are to be borne by the company and the amount of promoter’s compensation.
Article 291 (Determination of Matters concerning Issuance of Shares at Time of Incorporation) In connection with the shares to be issued at the time of incorporation, unless otherwise provided in the articles of incorporation, the following matters shall be determined with the unanimous agreement among the promoters: 1. Class and number of shares; and 2. If the company is to issue shares at the price higher than the par value, the number of such shares and the price. Article 292 (Authentication of Articles of Incorporation) The articles of incorporation shall take effect upon the authentication by a notary public.
Article 293 (Subscription of Shares by Promoters) Each promoter shall subscribe for shares in writing. Article 294 Deleted. <by Act No. 5053, Dec. 29, 1995> Article 295 (Payment of Subscription Price and Performance of Contribution in Kind in Promotion of Incorporation) (1) In case where the promoters have subscribed for all of the shares to be issued at the time of incorporation, they shall without delay make full payment of the subscription price. In this case, they shall designate the bank or other financial institution at which the subscription price is to be paid and the place of payment. <Amended by Act No. 5053, Dec. 9, 1995> (2) A promoter who is to make a contribution in kind shall deliver the pertinent property, without delay, on the date fixed for the payment of the subscription price, and if registration, recording or the creation or transfer of a right is required, he shall prepare completely the documents thereon and deliver them to the company. Article 296 (Appointment of Officers in Promotion of Incorporation) (1) When the payment of subscription price and the performance of contribution in kind are completed in accordance with Article 295, the promoters shall without delay appoint the directors and auditors by a majority vote. 2) The promoters shall have one vote for each share which they have subscribed for. Article 297 (Preparation of Minutes by Promoters) The promoters shall prepare and write their names and affix their seals or sign on the minutes of their meeting, in which the proceedings of deliberation and the results thereof shall be entered. <Amended by Act No. 5053, Dec. 29, 1995> Article 298 (Investigation and Reporting by Directors and Auditors, and Request for Appointment of Inspector) 1) The directors and auditors shall, without delay after their appointment, investigate whether or not all matters concerning the incorporation of the company have complied with the Acts, subordinate statutes and the articles of incorporation, and report the results thereof to the promoters. (2) Any director and auditor who was a promoter, contributor in kind or party to a contract whereby the company is to take over a property after its incorporation shall not participate in the investigation and reporting mentioned in paragraph (1). 3) If all of the directors and auditors are subject to paragraph (2), the directors shall have a notary public make the investigation and reporting mentioned in paragraph (1). (4) In case where the articles of incorporation provide for any matter set forth in Article 290, the directors shall request the court to appoint an inspector for the purpose of conducting the investigation on such matter: Provided, That this shall not apply to the case of Article 299-2. [This Article Wholly Amended by Act No. 5053, Dec. 29, 1995] Article 299 (Investigation and Reporting by Inspector) 1) The inspector shall investigate any matter set forth in Article 290 and whether or not the contribution in kind pursuant to Article 295 has been fulfilled and shall report the results thereof to the court. <Amended by Act No. 5053, Dec. 29, 1995> (2) The inspector shall, without delay after he has prepared a report of investigation under paragraph (1), deliver a copy of it to each promoter. (3) Where any statement in the report of investigation is contrary to the true fact, the promoters may produce an explanatory note thereon to the court.
Article 299-2 (Certification of Contribution in Kind, etc. ) With respect to the matters set forth in subparagraphs 1 and 4 of Article 290 the investigation and reporting by a notary public may substitute for the investigation of the inspector mentioned in Article 299 (1) and with respect to the matters set forth in subparagraphs 2 and 3 of Article 290 and the fulfillment of contribution in kind pursuant to Article 295, the appraisal by a certified appraiser may substitute for the investigation of the inspector mentioned in Article 299 (1).
In this case, the notary public or appraiser shall report on the results of the investigation or appraisal to a court. <Amended by Act No. 5591, Dec. 28, 1998> [This Article Newly Inserted by Act No. 5053, Dec. 29, 1995] Article 300 (Disposition of Alteration by Court) (1) If the court has found any of the matters falling with Article 290 to be improper after examining the reports on investigation by an inspector or notary public or the results of appraisal by an appraiser and an explanatory note of the promoters, it may alter the same and notify each promoter thereof. lt;Amended by Act No. 5591, Dec. 28, 1998> (2) A promoter who disagrees to an alteration under paragraph (1) may revoke the subscription of his shares. In this case, the procedures for the incorporation may be continued through amending the articles of incorporation. <Amended by Act No. 5591, Dec. 28, 1998> (3) If no promoter revokes the subscription of his shares within two weeks after receiving the notification from the court, the articles of incorporation shall be deemed to have been amended in accordance with the notification. <Amended by Act No. 5591, Dec. 8, 1998> Article 301 (Offering of Shares in Case of Subscriptive Incorporation) Where the promoters do not subscribe for all the shares issued at the time of incorporation, they shall offer shares for subscription. Article 302 (Offer of Share Subscription and Particulars to Be Entered in Subscription Form) (1) A person who intends to subscribe for shares shall complete two copies of subscription form, in which the class and number of shares for which he is to subscribe and his address are stated, and shall write his name and affix his seal or shall sign thereon. lt;Amended by Act No. 5053, Dec. 29, 1995> (2) The promoters shall prepare the subscription form, in which the following particulars shall be stated: <Amended by Act No. 1212, Dec. 12, 1962; Act No. 3724, Apr. 10, 1984; Act No. 5053, Dec. 29, 1995> 1. Date on which the articles of incorporation were authenticated, and the name of the notary public; 2. Matters set forth in Articles 289 (1) and 290; 3. Duration or reasons for dissolution of the company, if determined; 4.
Class and number of shares subscribed by promoters; 5. Matters mentioned in Article 291; 5-2. A provision that transfer of shares shall be subject to the approval of the board of directors, if so determined; 6. Distribution of interest prior to the commencement of business, if so determined; 7. Redemption of shares out of profits to be distributed to shareholders, if so determined; 8. A statement to the effect that the subscription of shares may be cancelled if the inaugural general meeting is not closed by a fixed date; 9.
Bank and any other financial institution in charge of the payment of the subscription price and the place of payment; and 10. Name, address and business office of a transfer agent, if any. (3) The proviso of Article 107 (1) of the Civil Act shall not apply to the offer of share subscription. <Amended by Act No. 1212, Dec. 12, 1962> Article 303 (Duties of Subscribers) A person who has subscribed for shares shall be responsible for the payment of the subscription price in accordance with the number of shares allotted to him by the promoters.
Article 304 (Notice or Peremptory Notice to Subscribers, etc. ) (1) Any notice or peremptory notice against a person who has subscribed for shares or who has applied for subscription for shares may be delivered to his address stated in the certificate of the share subscription or the subscription form for shares or to the address notified to the company by such person. (2) The notice or peremptory notice under paragraph (1) shall be deemed to have delivered at the time when it would normally have arrived. Article 305 (Payment of Subscription Price for Shares) 1) When all the shares to be issued at the time of incorporation have been subscribed for, the promoters shall without delay have the subscription price be paid fully by the subscribers. (2) The payment under paragraph (1) shall be made at the place as prescribed in the subscription form for shares. (3) Article 295 (2) shall apply mutatis mutandis to the cases under paragraph (1). Article 306 (Change of Depository, etc. of Payment) The change of the depository at which the subscription price shall be paid in and of the place of payment shall be subject to approval of the court.
Article 307 (Procedures for Forfeiture of Subscriber’s Rights) (1) In case where a person who has subscribed for shares fails to make the payment in accordance with Article 305, the promoters shall fix a certain date and shall, before two weeks prior to such date, give such person a notice to the effect that such person’s right shall be forfeited if he fails to make the payment by such date. (2) If the person who received the notice under paragraph (1) fails to perform the payment by such date, his rights shall be forfeited. In this case, the promoters may again offer such shares for subscription. 3) Paragraphs (2) and (3) shall not affect any claim for damages against the person concerned who has subscribed for shares. Article 308 (Inaugural General Meeting) (1) Where the payment pursuant to Article 305 and the performance of the contribution in kind have been completed, the promoters shall without delay convene an inaugural general meeting. (2) Articles 363 (1) and (2), 364, 368 (3) and (4), 368-2, 369 (1), 371 (2), 372, 373, 376 through 381 and 435 shall apply mutatis mutandis to the inaugural general meeting. <Amended by Act No. 3724, Apr. 10, 1984>
Article 309 (Resolutions at Inaugural General Meeting) At the inaugural general meeting, resolutions shall be adopted by affirmative votes of at least two-thirds of the total votes of attending subscribers and also by affirmative votes representing a majority of the total number of shares which have been subscribed. Article 310 (Investigation in Case of Abnormal Incorporation) (1) If any matter set forth in Article 290 has been determined by the articles of incorporation, the promoters shall request the court for the appointment of an inspector to investigate such matters. 2) A written report of the inspector mentioned in paragraph (1) shall be submitted to the inaugural general meeting. (3) The proviso of Article 298 (4) and Article 299-2 shall apply mutatis mutandis to the investigation under paragraph (1). <Newly Inserted by Act No. 5053, Dec. 29, 1995> Article 311 (Reporting by Promoters) (1) The promoters shall report in writing on the matters relating to the incorporation of the company, at the inaugural general meeting. (2) The written report under paragraph (1) shall specify the following: 1.
General circumstances concerning subscription of shares and payment of subscription price; and 2. Actual conditions regarding matters mentioned in Article 290. Article 312 (Election of Officers) At the inaugural general meeting, directors and auditors shall be elected. Article 313 (Investigation and Reporting by Directors and Auditors) (1) The directors and auditors shall, without delay after their inauguration, investigate whether all matters concerning the incorporation of the company have complied with Acts, subordinate statutes and the article of ncorporation and shall report the results thereof to the inaugural general meeting. <Amended by Act No. 5053, Dec. 29, 1995> (2) Article 298 (2) and (3) shall apply mutatis mutandis to the investigation and reporting under paragraph (1). <Amended by Act No. 5053, Dec. 29, 1995> (3) Deleted. <by Act No. 5053, Dec. 29, 1995> Article 314 (Alteration of Matters concerning Abnormal Incorporation) (1) If the inaugural general meeting finds any of the matters falling under Article 290 to be improper, it may alter them. 2) Article 300 (2) and (3) shall apply mutatis mutandis to the cases under paragraph (1). Article 315 (Claim for Damages against Promoters) Article 314 shall not affect any claim for damages against the promoters. Article 316 (Resolutions of Amending Articles of Incorporation and Abandoning Incorporation) (1) At the inaugural general meeting, a resolution calling for amending the Articles of incorporation or abandoning the incorporation of the company may be adopted. (2) A resolution under paragraph (1) may be adopted even where such matter has not been stated in the convocation notice for the meeting.
Article 317 (Registration of Incorporation) (1) The registration of incorporation of a stock company shall be effected within two weeks from the day on which the procedures in accordance with Articles 299 and 300 have been completed in cases where the promoters subscribed for all the shares issued at the time of incorporation, and within two weeks from the day on which the inaugural general meeting has been closed or from the day on which the procedures in accordance with Article 314 has been completed in cases where the promoters have offered shares for subscription. 2) For the registration under paragraph (1), the following matters shall be registered: <Amended by Act No. 3724, Apr. 10, 1984; Act No. 5053, Dec. 29, 1995; Act No. 6086, Dec. 31, 1999> 1. Matters set forth in Article 289 (1) 1 through 4, 6 and 7; 2. Total amount of the capital; 3. Total number and class of the issued and outstanding shares and contents and number of each class of shares; 3-2. Provision that the transfer of shares shall be subject to the approval of the board of director, if so determined; 3-3. Provision under which stock option is granted, if so decided; 3-4.
Places of branch offices; 4. Duration or reasons for dissolution of the company, if determined; 5. Dividend of interest prior to the commencement of business, if so determined; 6. Redemption of shares out of profits to be distributed to shareholders, if so determined; 7. Matters set forth in Article 347, if convertible shares are issued; 8. Name and residence registration number of each director and auditor; 9. Name, residence registration number and address of the representative director; 10. Provision that two or more representing directors shall jointly represent the company, if so determined; 11.
Trade name and the principal office of a transfer agent, if any; and 12. Name and resident registration number of each auditor of the audit committee, if such committee has been set up. (3) Matters set forth in paragraph (2) 1, 4, 9 and 10 shall be registered for the registration to be made in case of establishing a new branch or transferring a branch, at the place of such newly established branch or the changed place of such transferred branch, as the case may be. <Newly Inserted by Act No. 5053, Dec. 29, 1995> (4) Articles 181 through 183 shall apply mutatis mutandis to the registration of a stock company.
Article 318 (Certification and Liability by Depository for Subscription Price Paid in) (1) A bank and other financial institution which have had the custody of the subscription price paid shall deliver the certification as to the amount of money which are in its custody on demand by a promoter or a director. (2) The bank and other financial institution under paragraph (1) may not assert, in respect of the amount of money duly certified to be in its custody, non-performance, in whole or in part, of such payment or any restriction upon the return of such amount against the company.
Article 319 (Transfer of Rights Deriving from Share Subscription) The transfer of any right deriving from the subscription of shares shall not be effective against the company. Article 320 (Restrictions on Asserting Nullity or Revocation of Share Subscription) (1) Once the company comes into existence, no subscriber may assert the nullity of his subscription by reason of defects in any requirement as to the subscription form for shares, nor may revoke his subscription on the ground of fraud, duress or mistake. 2) The same shall apply even before the company comes into existence, if the subscriber has attended, and has exercised his rights at, the inaugural general meeting. Article 321 (Promoter’s Warranty Liability for Subscription and Payment) (1) In case where, after the company comes into existence, any shares issued at the time of incorporation of the company are found to have not been subscribed or the subscription for certain shares has been revoked, the promoters shall be deemed to have subscribed for such shares jointly. 2) In case where, after the company comes into existence, shares upon which payment of the subscription price in accordance with Article 295 (1) or 305 (1) has not been completed, the promoters shall make such payment jointly and severally. (3) Article 315 shall apply mutatis mutandis to the cases under paragraphs (2) and (3). Article 322 (Promoter’s Liability for Damages) (1) If promoters have neglected to perform their duties in connection with the incorporation of the company, they shall be jointly and severally liable for damages to the company. 2) If promoters have failed to perform their duties wilfully or by gross negligence, they shall be jointly and severally liable for damages to third persons. Article 323 (Joint and Several Liability of Promoters and Officers) If the directors or auditors have neglected to perform their duties under Article 313 (1) and are thereby liable for damages to the company or to third persons and if the promoters are also liable therefor, the directors, auditors and promoters shall be liable for such damages jointly and severally.
Article 324 (Release of Promoter’s Liability and Derivative Suits by Shareholders) Articles 400, and 403 through 406 shall apply mutatis mutandis to the promoters. Article 325 (Inspector’s Liability for Damage) If an inspector appointed by the court has failed to perform his duties wilfully or by gross negligence, he shall be liable for damages to the company or to third persons. Article 326 (Promoter’s Liability where Company Fails to Come into Existence) (1) If the company fails to come into existence, the promoters shall be jointly and severally liable for all acts conducted in connection with the incorporation of the company. 2) In case of paragraph (1), the promoters shall assume any expenditures incurred in connection with the incorporation of the company. Article 327 (Liability of Self-styled Promoter) A person who has consented to have his name and any statement indicating his participation in the incorporation of the company entered in the application form for subscription and/or in any other documents which has been issued in connection with the offering of shares for subscription shall assume the same liability as that of a promoter.
Article 328 (Action for Nullity of Incorporation) (1) The nullity of the incorporation of a company may be contended only by the shareholders, directors or auditors and only by means of an action which shall be filed within two years from the day on which the company comes into existence. <Amended by Act No. 3724, Apr. 10, 1984> (2) Articles 186 through 193 shall apply mutatis mutandis to the action mentioned in paragraph (1). Article 382 (Election, Relationship with Company) (1) Directors shall be elected at a general shareholders’ meeting. 2) Provisions relating to mandates shall apply mutatis mutandis to the relationship between the company and the directors. Article 382-2 (Concentrated Vote) (1) Where a general meeting of a company is convened to elect two directors or more, shareholders who hold no less than 3/100 of the total issued shares other than nonvoting shares may request that the company elect directors by means of a concentrated vote, except as otherwise prescribed by the articles of incorporation. (2) A request under paragraph (1) shall be made in a written statement at least seven days prior to the day set for the meeting. 3) Where there is a request under paragraph (1), each shareholder shall have voting rights per share of the same number as number of directors to be elected, with respect to a resolution of election of directors, and the voting rights may be exercised by means of a concentrated vote for one or several candidates for directors. (4) Where directors are to be elected by a vote under paragraph (3), the directors shall be elected among and in order of candidates who obtain the most votes. (5) Where there is a request under paragraph (1), the chairman of the meeting shall inform the members. 6) A written statement under paragraph (2) shall be kept at the principal office until the general meeting is completed and offered for the inspection of the shareholders during the business hours. [This Article Newly Inserted by Act No. 5591, Dec. 28, 1998] Article 382-3 (Duties of Directors to be Faithful) Directors shall perform their duties faithfully for the good of the company in accordance with Acts, subordinate statutes, and the articles of incorporation. [This Article Newly Inserted by Act No. 5591, Dec. 28, 1998]
Article 382-4 (Duties of Directors to Keep Secret) Directors shall not divulge the business secret of the company, which has come to his knowledge during his duties, not only while in the office but also after the retirement. [This Article Newly Inserted by Act No. 6488, Jul. 24, 2001] Article 383 (Number, Term of Office) (1) Directors shall be at least three in number: Provided, That in case of a company of which the total of capital is less than five hundred million won, the number of the directors may be one or two. lt;Amended by Act No. 5591, Dec. 28, 1998> (2) The terms of office of directors may not exceed three years. <Amended by Act No. 3724, Apr. 10, 1984> (3) The terms of office under paragraph (2) may be extended by the articles of incorporation up to the closing of the ordinary general shareholders’ meeting convened in respect of the last period for the settlement of accounts within their terms of office. <Amended by Act No. 3724, Apr. 0, 1984> (4) Where the number of a director is turned into one under the proviso of paragraph (1), the term “board of directors” shall be read as “general meeting of shareholders” from among the provisions of Articles 302 (2) 5-2, 317 (2) 3-2, 335 (1) (proviso) and (2), 335-2 (1) and (3), 335-3 (1) and (2), and 335-7 (1), Article 340-3 (1) 5, subparagraph 6-2 of Article 356, and Articles 397 (1) and (2), 398, 416 (text), 461 (1) (text) and (3), 462-3 (1), 464-2 (1), 469, 513 (2) (text), and 516-2 (2) (text) (including where this provision shall apply mutatis mutandis), respectively, and the term “where the board of directors has made a resolution” from the provisions of Article 522-3 (1) shall be read as “where the notice for convocation of a general meeting has been made under Article 363 (1)”. <Newly Inserted by Act No. 5591, Dec. 28, 1998; Act No. 6086, Dec. 1, 1999> (5) Where the number of a director is turned into one under the proviso of paragraph (1), the provisions of Articles 390 through 392, 393 (2), 399 (2), 526 (3), 527 (4), 527-2, 527-3 (1), and 527-5 (2) shall not apply. <Newly Inserted by Act No. 5591, Dec. 28, 1998> (6) Where the number of a director is turned into one under the proviso of paragraph (1), the director shall represent the company and perform the functions of the board of directors under
Articles 362, 363-2 (3), 366 (1), 393 (1), and 412-3 (1). <Newly Inserted by Act No. 5591, Dec. 28, 1998> Article 384 Deleted. <by Act No. 5053, Dec. 29, 1995> Article 385 (Removal) 1) A director may be removed from office at any time by a resolution adopted at a general shareholders’ meeting under Article 434: Provided, That in case where the term of office of a director was fixed and he is removed without cause before the expiration of such term, he may claim for damages caused thereby. (2) If the removal of a director is rejected at a general shareholders’ meeting notwithstanding the existence of dishonest acts or any grave fact in violation of Acts, subordinate statutes or the articles of incorporation in connection with his duties, any shareholder who hold no less than 3/100 of the total issued and outstanding shares may demand the court to remove the director, within one month from the date on which the above resolution of the general meeting was made. <Amended by Act No. 5591, Dec. 28, 1998> (3) Article 186 shall apply mutatis mutandis in case of paragraph (1). Article 386 (Vacancy) 1) A director retiring from office due to the expiration of his term of office or because of resignation shall continue to have the rights and duties of a director until newly elected director inaugurates office, if the directors remaining in office would otherwise become fewer than the minimum number prescribed by Acts or by the articles of incorporation, (2) The court may, if it deems it necessary in case of paragraph (1), appoint a person who is to temporarily perform the duties of a director, upon application by a director, auditor or any other interested person. In this case, registration thereof shall be effected at the place of the principal office. <Amended by Act No. 5053, Dec. 29, 1995> Article 387 (Qualification Shares) If the articles of incorporation provide that any director shall have a certain number of shares, the directors shall deposit such number of share certificates with the auditors, unless otherwise provided by the articles of incorporation.
Article 388 (Remuneration for Director) If the amount of remuneration to be received by directors has not been fixed by the articles of incorporation, it shall be determined by the resolution at a general shareholders’ meeting. Article 389 (Representative Director) (1) A company shall appoint, by the resolution of the board of directors, a director who shall represent the company: Provided, That the articles of incorporation may provide that such representative director shall be elected at a general shareholders’ meeting. (2) In the event of paragraph (1), it may be provided that two or more representative directors shall jointly represent the company. 3) Articles 208 (2), 209, 210 and 386 shall apply mutatis mutandis to the representative directors. <Amended by Act No. 1212, Dec. 12, 1962> Article 390 (Convocation of Board Meeting) (1) A meeting of the board of directors shall be convened by each director: Provided, That it shall not be the case where the board of directors has designated the director who is to convene such meeting. (2) Any directors who have not been designated as eligible to convene the board under the proviso of paragraph (1) may request the director so designated to convene it. Where the director so designated refuses the convocation of board meeting without any justifiable reasons, other directors may convene it. <Newly Inserted by Act No. 6488, Jul. 4, 2001> (3) In convening a meeting of the board of directors, the date of such meeting shall be fixed and a notice of convocation shall be dispatched to each director and auditor at least one week prior to such date: Provided, That the above period may be shortened by the articles of incorporation. <Amended by Act No. 3724, Apr. 10, 1984> (4)
When all the directors and auditors agree, a meeting of the board of directors may be held at any time without undergoing the procedures set forth in paragraph (3). <Amended by Act No. 3724, Apr. 10, 1984; Act No. 6488, Jul. 24, 2001> Article 391 (Method of Resolution by Board of Directors) 1) A resolution of the board of directors shall be adopted by the presence of a majority of directors in office and the affirmative votes of a majority of directors present at the meeting: Provided, That the voting requirement may be increased by the articles of incorporation. (2) The board of directors may, unless otherwise provided by the articles of incorporation, allow all directors to take part in the adoption of a resolution by means of a communication system of transmitting and receiving visual images and sounds simultaneously, without the personal attendance of all or part of them at the meeting. In this case, the relevant directors shall be deemed to have attended the meeting. <Newly Inserted by Act No. 6086, Dec. 1, 1999> (3) Articles 368 (4) and 371 (2) shall apply mutatis mutandis to the cases under paragraph (1) above. [This Article Wholly Amended by Act No. 3724, Apr. 10, 1984] Article 391-2 (Auditor’s Power to Attend Board of Directors and State Opinion) (1) Auditors may attend meetings of the board of directors and state his opinion thereat. (2) When any auditor deems that a director acts or is likely to act in contravention of Acts, subordinate statutes or the articles of incorporation, the auditor shall report such to the board of directors. [This Article Newly Inserted by Act No. 3724, Apr. 10, 1984] Article 391-3 (Minutes of Board of Directors) 1) Minutes shall be prepared with regard to the proceedings of a meeting of the board of directors. (2) The agenda, gist of the progress, results thereof, dissenters and reasons for their dissention shall be entered in the minutes, and the directors and auditors present at the meeting shall write their names and affix seals, or sign thereon. <Amended by Act No. 5053, Dec. 29, 1995; Act No. 6086, Dec. 31, 1999> (3) Shareholders may, during office hours, make a request either for their perusal of the minutes of the board of directors, or for the copy thereof. <Newly Inserted by Act No. 6086, Dec. 31, 1999> (4) The company may reject the request under paragraph (3) with an explanation of reasons therefor.
In this case, shareholders may peruse or copy the minutes of the board of directors, by obtaining a permit from the court. <Newly Inserted by Act No. 6086, Dec. 31, 1999> [This Article Newly Inserted by Act No. 3724, Apr. 10, 1984] Article 392 (Postponement and Continuation of Board of Directors) Article 373 shall apply mutatis mutandis to meetings of the board of directors. [This Article Wholly Amended by Act No. 3724, Apr. 10, 1984] Article 393 (Authorities of Board of Directors) (1) Disposal and transfer of important properties, borrowings of large-scale assets, appointment or dismissal of managers, and management of affairs such as establishment, transfer or abolition, etc. f branch offices shall be made by the resolution of the board of directors. <Amended by Act No. 6488, Jul. 24, 2001> (2) The board of directors shall supervise the performance of duties by the directors. (3) Directors may request that the representative director file a report on the affairs of other directors or employees with the board of directors. <Newly Inserted by Act No. 6488, Jul. 24, 2001> (4) Directors shall file a report on the progress of his duties with the board of directors more than once in every three months. <Newly Inserted by Act No. 6488, Jul. 24, 2001> [This Article Wholly Amended by Act No. 3724, Apr. 10, 1984]
Article 393-2 (Committees of Board of Directors) (1) The board of directors may, under the conditions as prescribed in the articles of incorporation, establish committees within the board. (2) The board of directors may delegate to the committees its power other than the matters set forth in the following subparagraphs: 1. Proposal of matters subject to an approval of the general shareholders’ meeting; 2. Appointment or dismissal of the representative director; 3. Establishment of committees and appointment or dismissal of their members; and 4. Any other matters as prescribed by the articles of incorporation. (3) The committee shall be composed of not less than two directors. 4) The committee shall notify each of directors of the resolutions it has adopted. In this case, any of the directors may, upon receipt of the notification, request the convocation of a meeting of the board of directors, and the resolutions of the committee may, again, be subject to the decision of the board of directors. (5) The provisions of Articles 386 (1), 390, 391, 391-3, and 392 shall apply mutatis mutandis with respect to the committees. [This Article Newly Inserted by Act No. 6086, Dec. 31, 1999] Article 394 (Representation in Action between Company and Directors) (1) When a company files an action against a director and vice versa, the auditors shall represent the company in connection with such action.
The same shall apply where a company is in receipt of a demand under Article 403 (1). (2) In case where a member of the audit committee under Article 415-2 is a party to an action, the audit committee or a director shall request the court to elect a person to represent the company. <Newly Inserted by Act No. 6086, Dec. 31, 1999> [This Article Wholly Amended by Act No. 3724, Apr. 10, 1984] Article 395 (Acts of Apparent Representative Director and Liability of Company) A company shall be liable to a third person acting in good faith for any act done by a director who has used any title such as president, vicepresident, executive director, managing director, etc. rom which it may be assumed that he has an authority to represent the company even where such person has no such authority. Article 396 (Obligation to Keep Articles of Incorporation, etc. and Open to Public Access) (1) Directors shall keep the articles of incorporation and the minutes of the general shareholders’ meetings at the principal office and each branch office, and shall keep the register of shareholders and the register of bonds at the principal office. In this case, if there is a transfer agent, the register of shareholders or the register of bonds or the duplicates thereof may be kept in the business office of the transfer agent. <Amended by Act No. 3724, Apr. 0, 1984; Act No. 6086, Dec. 31, 1999> (2) Any shareholder or any creditor of the company may demand, at any time during business hours, the inspection or the copying of the documents set forth in paragraph (1). Article 397 (Prohibition of Competitive Business) (1)
No director shall, without the approval of the board of directors, effectuate for his own account or for the account of a third person any transaction which falls within the class of businesses of the company or become a member with unlimited liability or a director of any other company whose business purposes are the same as those of the company. <Amended by Act No. 5053, Dec. 9, 1995> (2) If any director has effectuated a transaction for his own account in contravention of paragraph (1), the company may, by the resolution of the board of directors, deem such transaction as effectuated for account of the company and if he has effectuated a transaction for account of a third person, the company may demand the pertinent director to transfer any interest accrued therefrom. <Amended by Act No. 1212, Dec. 12, 1962; Act No. 5053, Dec. 29, 1995> (3) The rights under paragraph (2) shall be extinct with the lapse of one year after the day on which such transaction has been effectuated. <Amended by Act No. 5053, Dec. 29, 1995> Article 398 (Transaction between Director and Company) A director may effectuate a transaction with the company for his own account or for account of a third person only if he has obtained the approval of the board of directors. In this case, Article 124 of the Civil Act shall not apply. Article 399 (Liability to Company) 1) If directors have acted in violation of any Acts and subordinate statutes or of the articles of incorporation or has neglected to perform their duties, they shall be jointly and severally liable for damages to the company. (2) If any act mentioned in paragraph (1) has been done in accordance with the resolution of the board of directors, the directors who have assented to such resolution shall take the same liability. (3) The directors who have participated in the resolution mentioned in paragraph (2) and whose dissenting opinion has not been entered in the minutes shall be presumed to have assented to such resolution. Article 400 (Release of Liability to Company)
The liability of directors under Article 399 may be released by the consent of all shareholders. Article 401 (Liability to Third Persons) (1) If directors have neglected to perform their duties wilfully or by gross negligence, they shall be jointly and severally liable for damages to third person. (2) Article 399 (2) and (3) shall apply mutatis mutandis in case of paragraph (1). Article 401-2 (Liability of Person who Instructs Another Person to Conduct Business) (1) A person who falls under any of the following subparagraphs shall be deemed to be a director in the application of Articles 399, 401, and 403 to the duties which he instructs or conducts: 1.
A person who instructs a director to conduct business by using his influence over the company; 2. A person who conducts business in person under the name of a director; and 3. A person other than a director who conducts the business of the company by using a title which may be recognized as authorized to conduct the business of the company, such as honorary chairman, chairman, president, vice-president, executive director, managing director, director, or others. (2) In case of paragraph (1), a director who is liable for damages to a company or third party shall be jointly and severally liable therefor with a person under paragraph (1). [This Article Newly Inserted by Act No. 5591, Dec. 28, 1998] Article 402 (Right to Injunction)
If a director commits an act in contravention of Acts and subordinate statutes or the articles of incorporation and such an act is likely to cause irreparable damage to the company, the auditor or a shareholder who holds no less than 1/100 of the total issued and outstanding shares may demand on behalf of the company that the relevant director stop such an act. <Amended by Act No. 3724, Apr. 10, 1984; Act No. 5591, Dec. 28, 1998> Article 403 (Derivative Suit by Shareholders) (1) Any shareholder who holds no less than 1/100 of the total issued and outstanding shares may demand that the company file an action against directors to enforce their liability. <Amended by Act No. 591, Dec. 28, 1998> (2) The demand under paragraph (1) shall be made in writing, stating the reasons thereof. <Amended by Act No. 5591, Dec. 28, 1998> (3) If the company has failed to file such action within 30 days from the date on which the demand under paragraph (2) was received, the shareholder mentioned in paragraph (1) may immediately file such action on behalf of the company. (4) If irreparable damage may be caused to the company with the lapse of the period set forth in paragraph (3), the shareholder mentioned in paragraph (1) may immediately file such action, notwithstanding paragraph (3). <Amended by Act No. 5591, Dec. 28, 998> (5) The effect of institution of an action shall not be prejudiced even where the number of shares held by a shareholder who files an action under paragraphs (3) and (4) comes to be under 1/100 of the total issued shares after the institution of the action (excluding where he no longer holds the issued shares). <Amended by Act No. 5591, Dec. 28, 1998> (6) Where an action is filed under paragraphs (3) and (4), the parties concerned shall not render the nonsuit, renunciation or admission of the claim, or compromise, without permission from a court. <Amended by Act No. 5591, Dec. 28, 1998> (7) The provisions of Articles 176 (3) and (4), and 186 shall apply mutatis mutandis to the action under this Article.
Article 404 (Derivative Suit and Intervention, Notice of Action) (1) The company may intervene in the actions under Article 403 (3) and (4). (2) The shareholder who has filed an action under Article 403 (3) and (4) shall immediately effect a notice of an action to the company. Article 405 (Rights and Duties of Shareholder Filing Action) (1) If the shareholder who has filed an action pursuant to Article 403 (3) and (4) wins the case, he may demand the reimbursement by the company for the action cost and a reasonable amount of other expenses disbursed for the action. In such case, the company which has paid the expenses for action shall have a right to indemnity against the directors or auditors. lt;Amended by Act No. 1212, Dec. 12, 1962; Act No. 6488, Jul. 24, 2001> (2) If the shareholder who has filed an action pursuant to Article 403 (3) and (4) loses the case, he shall not be liable for damages to the company, except for the malicious intent. Article 406 (Derivative Suit and Action for Retrial) (1) In case where the plaintiff and defendant in an action under Article 403 have caused a judgment to be rendered by their collusion for the purpose of fraudulently injuring the rights of the company, which is the subject-matter of the case, the company or shareholders may institute an action for retrial against the final and conclusive judgment. 2) The provision of Article 405 shall apply mutatis mutandis to the action under paragraph (1).
Article 407 (Suspension of Exercise of Duties and Appointment of Acting Directors) (1) In case where an action for nullifying or revoking a resolution of electing a director or for removing a director is filed, the court may, upon the application of the parties concerned, render a provisional disposition suspending the exercise of duties of such director or appointing an acting director. Such disposition may be taken even before the institution of merits, if urgent circumstances exist. (2) The court may, upon the application by the parties concerned, alter or revoke the provisional disposition mentioned in paragraph (1). 3) If any disposition set forth in paragraphs (2) and (3) has been made, registration thereof shall be effected at the place of the principal office and each branch office. Article 408 (Powers of Acting Director) (1) Acting directors under Article 407 may not perform any act falling outside the ordinary course of business of the company, unless otherwise provided in the order of provisional disposition: Provided, That it shall not be the case where permission has been obtained from the court. (2) The company shall be liable to a third person acting in good faith, even if acting directors have violated paragraph (1). ————————————————-
SECTION 5 Amendment of the Articles of Incorporation Article 433 (Method of Amendment of Articles of Incorporation) (1) The articles of incorporation shall be amended by a resolution of the general shareholders’ meeting. (2) The summary of agenda relating to the amendment of the articles of incorporation shall be stated in the notice and public notice under Article 363. Article 434 (Special Resolution for Amendment of Articles of Incorporation) The resolution set forth in Article 433 (1) shall be adopted by the affirmative votes of no less than 2/3 of the voting rights of the shareholders present at the general meeting and of at least 1/3 of the total issued and outstanding shares. [This Article Wholly Amended by Act No. 5053, Dec. 29, 1995]
Article 435 (General Meeting of Shareholders of Certain Class of Shares) (1) If a company has issued two or more classes of shares and a certain class of shareholders is to be prejudiced by the amendment of the articles of incorporation, the resolution of a general meeting of such specific class of shareholders shall be required for effecting such amendment in addition to that of a general shareholders meeting. (2) The resolution under paragraph (1) shall be adopted by the affirmative votes of no less than 2/3 of the voting rights of the shareholders present at the general meeting and of at least 1/3 of the total issued and outstanding shares of such class. <Amended by Act No. 5053, Dec. 9, 1995> (3) The provisions relating to a general shareholders’ meeting shall apply mutatis mutandis to the general meeting mentioned in paragraph (1), except for those provisions relating to non-voting shares. Article 436 (Idem-General Meeting of Shareholders of Certain Class of Shares) Article 435 shall apply mutatis mutandis where special provisions are to be made with regard to each class of shares in accordance with Article 344 (3) and where the shareholders of certain classes are to be prejudiced by the swap or transfer of shares or the merger of the company. <Amended by Act No. 6488, Jul. 24, 2001> Article 437 Deleted. <by Act No. 5053, Dec. 29, 1995>

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