Criminal Liability of Directors

If a director commits an illegal act, he or she is liable for civil damages to the company and third parties. In contrast, directors are criminally liable if certain requirements are met.

Special breach of trust by a director (Article 960 of the Companies Act)

If a director, accounting advisor, corporate auditor, or executive officer, for the purpose of benefiting himself/herself or a third party or causing damage to the company, acts in breach of his/her duties and causes property damage to the stock company, he/she shall be punished by imprisonment with work for not more than 10 years or a fine of not more than 10 million yen, or both. This is a special law for breach of trust under the Penal Code, and the penalty is more severe than the Penal Code’s penalty for breach of trust, which is “imprisonment for not more than five years or a fine of not more than ¥500,000.

Illegal distribution of dividends (crime of endangering company assets)

If a director, accounting advisor, auditor, or executive officer makes a distribution of surplus in violation of the provisions of laws, regulations, or the articles of incorporation, he/she shall be punished by imprisonment for not more than five years or a fine of not more than 5,000,000 yen (Article 963, Paragraph 5, Item 2).

Crime of exercising false documents

If a director, accounting counselor, corporate auditor, executive officer, etc., in soliciting subscribers for shares, stock acquisition rights, bonds, or bonds with stock acquisition rights, has exercised any document containing an explanation of the company’s business or other matters, or any advertisement of such solicitation, or any other document concerning the solicitation that contains a false statement as to a material matter, the offeree shall be punished by imprisonment for not more than five years or a fine of not more than 5 million yen (Article 964, Paragraph 1 of the Companies Act). It is a crime to issue new shares based on false information.

Crime of making a deposit

If a director, accounting advisor, auditor, executive officer, etc. makes a deposit to disguise payment for the issuance of shares, he/she shall be punished by imprisonment for not more than five years or a fine of not more than 5,000,000 yen (Article 965 of the Companies Act).

Crime of excess issuance of shares

If a promoter, director, executive officer, etc. issues share in excess of the total number of shares authorized to be issued by the stock company, he/she shall be punished by imprisonment for not more than 5 years or a fine of not more than 5 million yen (Article 966, Paragraph 1 of the Companies Act).

Crime of bribery of directors, etc.

A director, accounting advisor, auditor, executive officer, etc. who, in connection with his/her duties, receives, or requests or promises to receive, a financial benefit from an unauthorized person is subject to imprisonment for not more than five years or a fine of not more than 5 million yen (Article 967, Paragraph 1 of the Companies Act). The crime of bribery is a status offense required of public officials, etc., but the crime of bribery is also applicable to directors of a stock company. A person who offers or promises to offer or promise to offer an improper benefit to a director of a stock company is also subject to imprisonment for not more than three years or a fine of not more than 3,000,000 yen (Article 967, Paragraph 2 of the Companies Act).

Offering of benefits related to the exercise of shareholders’ rights

If a director, accounting advisor, auditor, executive officer, etc. provides a property benefit in connection with the exercise of a shareholder’s rights, etc., on account of the stock company or subsidiary concerned, he/she shall be punished by imprisonment with work for not more than three years or a fine of not more than 3,000,000 yen (Article 970, Paragraph 1 of the Companies Act).

Acts punishable by fine

A director, accounting advisor, auditor, executive officer, etc. shall be liable to a non-penal fine of up to 1,000,000 yen if he/she falls under any of the following. There are various other cases in which a fine may be imposed, some of which are listed below:

• Failure to register the company as required by the Companies Act；
• Failure to give public notice or notification as required by the Companies Act；
• Failure to disclose information as required by the Companies Act；
• When a company refuses to allow inspection, copying, or delivery of a transcript or extract as required by the Companies Act；
• Failure to make entries or false entries in the articles of incorporation, shareholders’ register, bond register, minutes, inventory of assets, accounting books, balance sheet, profit and loss statement, business report, etc.； or
• When a company fails to explain matters requested by shareholders at general meetings of shareholders, etc., without justifiable reason.