Companies Act

Company auditors audit the execution of duties by directors (or directors and accounting advisors for a company with accounting advisor). In these cases, company auditors must prepare audit reports pursuant to the provisions of Ministry of Justice Order.

Company auditors may at any time request reports on the business from the directors and accounting advisors and managers and other employees, or investigate the status of the operations and financial status of the company with company auditor.

Company auditors may, if it is necessary for the purpose of performing duties of the company auditors, request reports on the business from a subsidiary company of the company with company auditor, or investigate the status of the operations and financial status of its subsidiary company.

The subsidiary company under the preceding paragraph may refuse the report or investigation under that paragraph if there are justifiable grounds.

If company auditors find that directors engage in misconduct, or are likely to engage in the conduct, or that there are facts in violation of laws and regulations or the articles of incorporation or grossly improper facts, they must report the same to the directors (or, for a company with board of directors, to the board of directors) without delay.

Company auditors must attend the board of directors meeting, and must state their opinions if they find it necessary; provided, however, that, if there are two or more company auditors, if there are provisions on the vote by special directors pursuant to the provisions of Article 373, paragraph (1), the company auditor who attends the board of directors meeting under paragraph (2) of that Article may be appointed by the company auditors from among the company auditors.

In the case provided for in the preceding Article, if company auditors find it necessary, they may demand that the directors (or a convenor in case provided for in the proviso to Article 366, paragraph (1)) call the board of directors meeting.

If, within five days from the day of the demand made pursuant to the provisions of preceding paragraph, a notice of calling of the board of directors meeting which designates as the day of the board of directors meeting a day falling within the period of two weeks from the day of the demand are not dispatched, the company auditors who made that demand may call the board of directors meeting.

The provisions of the preceding two paragraphs do not apply to the board of directors meeting under Article 373, paragraph (2).

Company auditors must investigate proposals, documents and other items prescribed by Ministry of Justice Order that directors intend to submit to the shareholders meeting. In these cases, if company auditors find that there is a violation of laws and regulations or the articles of incorporation or a grossly improper fact, they must report the results of the investigation to a shareholders meeting.

If a director engages, or is likely to engage in an act outside the scope of the purpose of a stock company, or other acts in violation of laws and regulations or the articles of incorporation, if that act is likely to cause substantial detriment to relevant company with company auditor, company auditors may demand that relevant director cease that act.

In the cases provided for in the preceding paragraph, if the court orders a director under the preceding paragraph to cease that act by a provisional disposition, the court is not to require the provision of security.

Notwithstanding the provisions of Article 349, paragraph (4), Article 353 and Article 364, in cases set forth in the following items, the company auditors represent the company with company auditor in actions in those items:

if a company with company auditor files an action to a director (including a person who was a director; hereinafter the same applies in this Article) or where a director files an action to a company with company auditor;

if a company with company auditor which is a wholly owning parent company resulting from the share exchange, etc. (meaning a wholly owning parent company resulting from the share exchange, etc. as prescribed in Article 849, paragraph (2), item (i); the same applies in item (iii) of the following paragraph) files an action to enforce liabilities (limited to those for which the fact of the cause occurred by the time when the act set forth in items of Article 847-2, paragraph (1) becomes effective) of directors, executive officers (including persons who were executive officers; hereinafter the same applies in this Article), or liquidators (including persons who were liquidators; hereinafter the same applies in this Article) of its wholly owned subsidiary company resulting from the share exchange, etc. (meaning its wholly owned subsidiary company resulting from the share exchange, etc. as prescribed in Article 847-2, paragraph (1); the same applies in item (iii) of the following Article); and

if a company with company auditor which is an ultimate, wholly owning parent company, etc. (meaning an ultimate, wholly owning parent company, etc. as prescribed in Article 847-3, paragraph (1); the same applies in item (iv) of the following paragraph) files an action to enforce specific liabilities (meaning an action to enforce specific liabilities prescribed in paragraph (1) of the same Article) to directors, executive officers, or liquidators of its wholly owned subsidiary company, etc. (meaning a wholly owned subsidiary company, etc. as prescribed in paragraph (2), item (ii) of the same Article and including any company that is deemed to be such a wholly owned subsidiary company, etc. pursuant to the provisions of paragraph (3) of the same Article; the same applies in item (iv) of the following paragraph).

Notwithstanding the provisions of Article 349, paragraph (4), in the following cases, the company auditors represent the company with company auditor:

if a company with company auditor is requested to file an action under Article 847, paragraph (1), Article 847-2, paragraph (1) or (3) (including the cases where it is applied mutatis mutandis pursuant to paragraphs (4) and (5) of the same Article), or Article 847-3, paragraph (1) (limited to requests for the filing of actions that enforce the liability of directors); or

if a company with company auditor receives a notice of suit under Article 849, paragraph (4) (limited to those related to actions that enforce the liability of directors) and a notice or demand pursuant to the provisions of Article 850, paragraph (2) (limited to those related to the settlement of a suit relating to an action that enforces the liability of directors);

if a company with company auditor which is a wholly owning parent company resulting from the share exchange, etc. makes a request pursuant to the provisions of Article 847, paragraph (1) (limited to a request to file an action prescribed in item (ii) of the preceding paragraph) or receives a notice pursuant to the provisions of Article 849, paragraph (6) (limited to those related to the action to enforce the liability of directors, executive officers, or liquidators of its wholly owned subsidiary company resulting from the share exchange, etc.); or

if a company with company advisor which is an ultimate, wholly owning parent company, etc. makes a request pursuant to the provisions of Article 847, paragraph (1) (limited to the request to file an action to enforce specific liabilities prescribed in item (iii) of the preceding paragraph) or receives a notice pursuant to the provisions of Article 849, paragraph (7) (limited to those related to the action to enforce liabilities of directors, executive officers, or liquidators of a stock company which is its wholly owned subsidiary company, etc.).

The remunerations for company auditors are fixed by a resolution at a shareholders meeting if the amount thereof is not prescribed in the articles of incorporation.

If there are two or more company auditors, if there are no provisions in the articles of incorporation or no resolution at a shareholders meeting with respect to the remunerations for each company auditor, those remunerations are fixed by discussion by the company auditors within the extent of the remunerations referred to in the preceding paragraph.

Company auditors may state their opinions on remunerations for the company auditors at a shareholders meeting.

If company auditors make the following requests to a company with company auditor (including a stock company the articles of incorporation of which provide that the scope of the audit by its company auditors is limited to an audit related to accounting) with respect to the execution of their duties, relevant company with company auditor may not refuse relevant request except if it proves that the expense or debt relating to relevant request is not necessary for the execution of the duties of relevant company auditors:

requests for advancement of expenses;

requests for indemnification of the expenses paid and the interests thereon from and including the day of the payment; or

requests for the payment (or, if the debt is not yet due, the provision of reasonable security) to the creditor of a debt incurred.

A stock company which is not a public company (excluding a company with board of company auditors and company with financial auditor) may provide in the articles of incorporation that the scope of the audit by its company auditors is limited to an audit related to accounting, notwithstanding the provisions of Article 381, paragraph (1).

company auditors of a stock company that has the provisions of the articles of incorporation under the provisions of the preceding paragraph must prepare audit reports pursuant to the provisions of Ministry of Justice Order.

The company auditors under the preceding paragraph must investigate the proposals, documents and other items prescribed by Ministry of Justice Order that are related to accounting which the directors intend to submit to a shareholders meeting, and report the results of that investigation to a shareholders meeting.

The company auditors under paragraph (2) may at any time inspect or copy the following things, or request reports on accounting from directors and accounting advisors as well as managers or other employees:

if the account books or the materials relating thereto are prepared in writing, relevant documents; or

if an account book or material relating thereto has been prepared as an electronic or magnetic record, anything that is used in a manner prescribed by Ministry of Justice Order to display the information recorded in that electronic or magnetic record.

If it is necessary for the purpose of performing duties of a company auditor under paragraph (2), a company auditor may request reports on accounting from a subsidiary company of the stock company, or investigate the status of the operations and financial status of the stock company or of its subsidiary company.

The subsidiary company under the preceding paragraph may refuse the report or investigation under that paragraph if there are justifiable grounds.

The provisions from Article 381 through Article 386 do not apply to a stock company which has provisions of the articles of incorporation pursuant to the provisions of paragraph (1).