National Report on Japan

Abstract

Corporate groups, consisting of a parent and its subsidiaries, are the most essential elements of the Japanese economy. This report explains the treatment of corporate groups under Japanese corporate law. Japanese law does not see a corporate group as a legal entity to which rights and obligations are attributable, nor does it contain systematic regulations on corporate groups. However, there are a number of corporate law rules that refer to “parents,” “subsidiaries,” or “corporate groups.” Rules on accounting and disclosure incorporate regulations based on a consolidated basis, which requires the information on member companies of the groups. There are no specific regulations that address the protection of the minority shareholders and creditors of subsidiaries; instead, these are left to general rules on the duties and liabilities of corporate directors. While Japanese corporate law does not recognize the Rozenblum Doctrine or similar theories, which recognize the interests of corporate groups, the directors of the subsidiaries may still justify their decision on a specific transaction with their parent that is disadvantageous for the subsidiary because they have a wide range of discretion concerning how to maximize the subsidiary’s long-term corporate value. The law for the protection of a parent firm’s shareholders has been developed by recent case law and the revision of the Companies Act, such as the parent firm’s directors’ duty to monitor the subsidiary, the regulation on internal control systems to govern corporate groups, and the introduction of multiple derivative actions. Finally, we can see the development of the regulations to protect investors’ interests when a corporate group is formed. More specifically, the rules applicable to the cases of “squeeze-out” and changes in corporate control transactions are examined.