WHAT IS A REPRESENTATIVE DIRECTOR?

1. What is a representative director?

A representative director refers to a director who has the authority to represent a stock company (Article 349 of the Companies Act).In addition, in many companies, the Board of Directors also plays a role in executing business decisions made by the board of directors (Article 363, Paragraph 1, Item 1 of the Act), and in many companies, making decisions regarding daily business execution.

The Companies Act stipulates that the institutions in a stock company include a general meeting of shareholders, a board of directors, directors, auditors, and a board of auditors. To decide what institutions a stock company should establish as its own company, it must follow the provisions of the Companies Act (Chapter 4 of the Companies Act).

A company with a board of directors must have a representative director (Article 362, Paragraph 3 of the Act).On the other hand, a company without a board of directors may have a representative director. Still, each director has the right to represent the company, so there may be no representative director (Article 349, Paragraphs 2 and 3 of the Act).

2. Characteristics of representative director

First, I would like to introduce the term of office, number of representative directors, and compensation.

2.1. Term is often 2 years

Although there is no provision for the term of office of a representative director under the Companies Act, the term of office of a director is limited to two years (Article 332, Paragraph 1 of the Companies Act). Therefore, in many cases, the term of office of the representative director is set to two years.

2.2. There are cases where there are multiple people

Additionally, there is no limit to the number of representative directors. There are cases in which large companies choose multiple representative directors. By selecting multiple representative directors, multiple representative directors can carry out business execution, allowing for agile company management and reducing the operational burden on individual representative directors.

However, each representative director has strong external authority, so even if a limit is placed on the authority of a representative director within the company, it cannot be used against a third party in good faith.Additionally, if a conflict of opinion arises between multiple representative directors, it may be difficult to reconcile opinions.

2.3. The total amount of remuneration will be determined at the stock meeting

The total amount of remuneration for directors, including representative directors, is determined by the articles of incorporation or a resolution at a general meeting of shareholders, and the individual amount is determined by a resolution by the board of directors (Article 361 of the Companies Act).

A company cannot delegate the authority to decide the total amount of remuneration to the board of directors, either by the articles of incorporation or by a resolution at a general meeting of shareholders. This is because if the board of directors were allowed to determine the total amount of remuneration, there is a risk that they would set their remuneration too high.

However, even if the total amount is decided at the general meeting of shareholders, individual amounts are determined by the board of directors, so the risk mentioned above cannot be eliminated. The resolution was to establish a policy for determining individual remuneration.

3. Difference between representative director, president, and CEO

President and CEO are general titles, not positions as defined by the Companies Act. Set by each company to indicate its role both externally and internally.

President is a title generally given to the top of a company, but like general manager, section manager, managing director, managing director, etc., it is a title chosen by the company to indicate the role within the company.

On the other hand, a representative director is a position under corporate law that indicates external authority.If a representative director also serves as president, he or she may be referred to as "representative director and president," but this does not necessarily mean that "president = representative director," and there are many companies where the representative director and president are different.

CEO is an abbreviation for Chief Executive Officer and is a title in American law. Therefore, in Japan, they have no legal meaning like president, chairman, general manager, etc.

Under American law, the CEO is the chief executive officer and the COO is the chief operating officer, but in Japan, the president is the head of both management and execution, and often serves as both the CEO and COO.

4. Difference between representative director and director

The major difference between a representative director and other directors is the presence or absence of representation rights. Directors are institutional officers of the company who are elected by resolution at the general meeting of shareholders (Article 329, Paragraph 1 of the Companies Act).

In a company with a board of directors, directors make decisions regarding business execution as members of the board of directors, but they do not have representative authority (Article 362, Paragraph 2, Item 1 of the Act). On the other hand, the representative director executes business as the representative of the stock company based on decisions made by the board of directors (Article 363, Paragraph 1, Item 1 of the Act).

In a company without a board of directors, each director represents the company (Article 349, Paragraph 1 and Paragraph 2 of the Act), and therefore plays the same role as a representative director. However, if a company without a board of directors has a representative director, only the representative director has external representation authority (proviso to Article 349, Paragraph 1 of the Act).

What is the representative director?

A director who is not a representative director but is given a name that is recognized as having the authority to represent a stock company is called a "representative director".Titles that are treated as representative directors include the president, vice president, chairman of the board, and CEO. On the other hand, managing directors and senior managing directors often do not have the right to represent themselves, so they do not serve as representative directors.

If a director who is not a representative director holds the title of ``president,'' it may cause damage to a third party who believes that person is a representative director. (Article 354 of the Companies Act).

5. Difference between representative director and executive officer

An executive officer is an organization with a position equivalent to a director who is in charge of business execution in a company with committees (Article 418 of the Companies Act). In a company with committees, the representative executive officer has a position equivalent to the representative director who represents the company (Article 420 of the Act).

Please note that "executive officer", like president and CEO, is not a position under the Companies Act. An example of the use of the term "executive officer" is a company that gives the title of "executive officer" to an employee who executes the company's business in place of a director.

6. The authority held by the representative director

The powers of the representative director based on the provisions of the Companies Act are as follows.

6.1. Representative authority

The representative director has the "authority to take any judicial or extrajudicial action related to business (Article 349, Paragraph 4 of the Companies Act)."Even if internal restrictions are placed on representative authority, it cannot be used against a third party acting in good faith (paragraph 5 of the same article), and representative authority can be said to be the most important authority possessed by a representative director.

Situations in which representative authority is exercised include situations, such as signing a contract with another company on behalf of the company or filing a lawsuit on behalf of the company. When exchanging contracts, it is normal to sign and affix the name and seal of ``〇〇 Co., Ltd. Representative Director △△.'' If the name of the representative director is not included, there will be doubts about the conclusion of the contract.

If a representative director exercises his or her representative authority to benefit himself or a third party, the focus is on whether the other party is aware of the representative director's true purpose.

If he was aware of this, the actions of the representative director would be acts of unauthorized agency (Article 107 of the Civil Code, applied by analogy). This is the so-called "abuse of representative power" issue.The provisions regarding abuse of representative power prevent the actions of a representative director from being attributed to the company only when the other party knows the representative director's intentions, and seeks to strike a balance between protecting the other party in a transaction and the company.

6.2. Executive authority

The representative director has the authority to execute the company's business (Article 363, Paragraph 1, Item 1 of the Companies Act).A company with a board of directors has a structure in which the general meeting of shareholders and the board of directors make decisions regarding the company's business, and the representative director executes the decisions.

However, the representative director can also make decisions regarding operations delegated by the board of directors, except for "important business execution" listed in Article 362, Paragraph 4 of the Companies Act.

Therefore, many companies delegate decision-making authority regarding day-to-day business execution to the representative director, who is responsible for both decision-making and business execution.

Examples of "important business execution" for which decision-making cannot be delegated to the representative director are:

If decision-making authority can be delegated to the representative director for the acts listed above, the representative director's authority will become too strong and the purpose of establishing a board of directors will be diluted. For this reason, the Companies Act stipulates that decision-making cannot be delegated for "important business execution."

6.3. Other permissions

They are also given administrative authority within the company, such as preparing minutes of general meetings of shareholders and the board of directors, preparing a register of shareholders, and preparing and submitting financial statements and business reports.

Regarding the execution of these administrative duties, a director in charge of operations may be appointed. It is often difficult for the representative director to be in charge of all the duties stipulated by law, and in many companies, roles are divided between the representative director and the director in charge of operations.

7. Selection of representative director

Article 331 of the Companies Act stipulates "persons who cannot serve as directors" as follows: In other words, this is a condition that precludes him from becoming a representative director.

The selection of representative directors differs between companies with a board of directors and companies without a board of directors.

7.1. For companies with a board of directors

The representative director is selected by resolution of the board of directors (Article 362, Paragraph 3 of the Companies Act).Selection requires the presence of a majority of directors and the approval of a majority of the directors present.

Depending on the provisions of the articles of incorporation, it is also possible for selection to be made by resolution at a general meeting of shareholders rather than the board of directors.

7.2. In the case of a company without a board of directors

Unlike a company with a board of directors, in principle, each director has the right to execute business and the right to represent the company, so it is not necessary to appoint or select a representative director.

In addition to being determined directly in the articles of incorporation, the representative director is determined from among the directors by mutual election of directors or resolution at a general meeting of shareholders based on the articles of incorporation (Article 349, Paragraph 3 of the Companies Act).

8. Responses and procedures when a new representative director is selected

If a new representative director is selected, the change in representative director must be registered within two weeks of the appointment. The name and address of the representative director are registered matters (Article 911, Paragraph 3, Item 14 of the Companies Act).

Examples of documents required for the change registration procedure are as follows.

Reference: Legal Affairs Bureau “Application for Registration of Change in Stock Company (In cases where an officer (director/auditor) resigns and a new officer assumes office in a company with a board of directors)”.

9. Responses and procedures when a representative director resigns or is dismissed

If a representative director resigns or is dismissed during the term of office, the previous representative director retains the authority as representative director until a newly appointed representative director takes office (Article 351, Paragraph 1 of the Companies Act). It is also possible to appoint a temporary representative director to temporarily act as representative director at the request of an interested party (Article 2, Paragraph 2).

Representative directors can resign of their own volition, or they can be dismissed by a resolution of the board of directors (or a resolution of a general meeting of shareholders if their position as a director is also dismissed).

If a representative director resigns or is dismissed, it is necessary to select a new representative director and register the change of officers as soon as possible to avoid stagnation in company operations.

10. Conclusion

A representative director is a position under the Companies Act and is the body that represents the company externally. Titles such as president, chairman, and CEO are determined internally by the company and do not indicate the company's external role.

The representative director has strong authority to execute business as the company's representative. There are issues of abuse of authority by the representative director and issues of the representative director being a representative director, so be sure to understand the authority of each position and title before deciding carefully.