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Conflict of interest transaction in Japan

Conflict of Interest Transaction in Japan and legal information

Assumed that Ms. Nancy wants to incorporate a new company B and become a director. However, currently she is a director of company A.

In this case, she needs to obtain of approval for shareholders meeting of company A

Because, she has business know-how relating to foreign trade

When she incorporates a new company B, there is a possibility that her new company will inflict interest of company A

So, she needs to obtain approval of shareholders of company A

Called ” Aproval of director’s conflicting interest transaction “

Please refer to Article 356 of companies act ( Kaisha ho = 会社法 ) of Japan

(Restrictions on Competition and Conflicting Interest Transactions)
Article 356 (1) In the following cases, a director shall disclose the material facts on the relevant transactions at a shareholders meeting and obtain approval of the shareholders meeting:

(i) If a directors intends to carry out, for himself/herself or for a third party, any transactions in the line of business of the Stock Company

(ii) If the director intends to carry out any transactions with the Stock Company for himself/herself or for a third party; or

(iii) If a Stock Company intends to guarantee debts of a director or otherwise to carry out any transactions with a person other than the director that results in a conflict of interests between the Stock Company and such director

It applies to case where you ( representative director of company A You are 100% shareholder of company A ) purchases real estate from company A

In the case you file registration of ownership transfer from company A to you, you need to prepare minutes of shareholder’s meeting

If the company is a company with statutory board of directors, you need to acquire approval of board of directors.


Conflict of interest transaction and tax of Japan

Real estate transactions between companies and CEOs in Japan

Assumed that a property is owned by your company and you hope to transfer it to you(president).

Assumed that market price of the real estate is 10 yen. Book value of the real estate is 7 yen. You will purchase the real estate for 7 yen.
(The numbers have been reduced to make it easier to understand.)

In this case, it is deemed that your company has sold the real estate for 10 yen (at the market price).

It mean that you have received bonus of 3 yen. Because, by payment of 7 yen, you have received an asset worth 10 yen.
So, you need to pay additional income tax for the 3 yen.

On the other hand, it is deemed that your company has sold the real estate for 10 yen.
It sold asset of 7 yen for 10 yen. So, it has made capital gain of 3 yen.
So, it will increase the amount of corporation tax.

So, it is necessary to know the fair market value of the real estate.


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