Auditors

Appointment of Corporate Auditors

Corporate auditors are elected at the general meeting of shareholders (Article 329, Paragraph 1 of the Companies Act). In principle, the term of office of corporate auditors is four years (Article 336, Paragraph 1 of the Companies Act).

Duties of Statutory Auditors

Corporate auditors must audit the execution of duties by directors and prepare an audit report (Article 381, Paragraph 1 of the Companies Act). In order to ensure that the auditing function of corporate auditors is effective, corporate auditors may, at any time, request reports on business from directors and employees and investigate the state of business and assets (Article 381, Paragraph 2 of the Companies Act). They may also investigate the business and financial conditions of subsidiaries when necessary in the performance of their duties (Article 381, Paragraph 3 of the Companies Act).

Reporting Obligations to Directors

Auditors are required to report to the Board of Directors when they find that a director has committed or is likely to commit a wrongful act, a fact that violates a law or the provisions of the Articles of Incorporation, or a fact that is extremely unfair (Article 382 of the Companies Act).

Obligation to Attend Board Meetings

Corporate auditors are required to attend meetings of the Board of Directors and express their opinions when deemed necessary (Article 383, Paragraph 1 of the Companies Act). In addition, if a report to the Board of Directors is required and a meeting of the Board of Directors is not held, they may request the directors to convene a meeting of the Board of Directors, and if no meeting is held, they may convene a meeting of the Board of Directors themselves (Article 383, Paragraphs 2 and 3 of the Companies Act).

Obligation to Report to General Meetings of Shareholders

Corporate auditors must investigate proposals and documents that directors intend to submit to the general meeting of shareholders and other items specified by the applicable Ordinance of the Ministry of Justice (Article 384 of the Companies Act). If, as a result of the investigation, they find any violation of laws and regulations or the Articles of Incorporation, or any extremely unfair matter, they must report the results of the investigation to the general meeting of shareholders.

Injunction of Directors’ Acts by Statutory Auditors

If a director engages in an act that is outside the scope of the purposes of a company or otherwise violates laws, regulations, or the articles of incorporation, and there is a risk of such violation, corporate auditors may demand that the director cease such act (Article 385 of the Companies Act). A request for an injunction against illegal acts can be made directly to the director, or a lawsuit can be filed with the court demanding that the director refrain from committing the illegal act. If you need a decision quickly, you can also file a motion for a provisional disposition with the court.

Representation of the Company in Litigation between a Director and the Company

In the following cases, the Statutory Auditor will pursue the lawsuit on behalf of the company.
1 When a company with Kansayaku brings an action against a director
2 When a director files a lawsuit against a company which has the post of Kansayaku (Statutory Auditors)
3 When a shareholder demands that an action be brought against a director.

Remuneration of Statutory Auditors

Remuneration for corporate auditors is to be determined by a resolution of the general meeting of shareholders, unless otherwise stipulated in the articles of incorporation (Article 387, Paragraph 1 of the Companies Act). In cases where there are two or more corporate auditors and the total amount is determined at a general meeting of shareholders, the remuneration of each corporate auditor shall be determined through discussions among the corporate auditors (Article 387, Paragraph 1 of the Companies Act).

Limitation of scope of audit

For a company with restrictions on the transfer of shares (non-public company), the scope of the auditor’s audit may be limited to those related to accounting in accordance with the articles of incorporation (Article 389, Paragraph 1 of the Companies Act). In this case, auditors are required to prepare an audit report, investigate proposals, documents, and other items related to accounting that directors intend to submit to the general meeting of shareholders, and report the results of their investigation to the general meeting of shareholders (Article 389, Paragraph 3 of the Companies Act).