Qualifications of Directors

Plain-language explanation

Article 331 of the Companies Act sets out who can — and cannot — serve as a director of a Japanese stock company. First, a corporation (legal entity) itself cannot be a director; only natural persons qualify. Individuals are also disqualified if they were convicted of serious violations under the Companies Act, the Act on General Incorporated Associations and Foundations, or specified provisions of the Financial Instruments and Exchange Act (such as insider trading or disclosure fraud), until two years have passed since completing (or being released from) their sentence. Anyone currently serving a sentence of imprisonment or heavier for other legal violations (excluding suspended sentences) is likewise barred. This prevents individuals with serious compliance violations from immediately re-entering corporate leadership.

The remaining paragraphs add structural rules depending on how the company is organized. A non-public company may require in its articles that directors also be shareholders, but a public company (one whose shares are freely transferable) cannot impose this requirement, reflecting the separation of ownership and management in publicly traded firms. In a company with an Audit and Supervisory Committee, committee-member directors cannot simultaneously serve as executive officers or employees of the company or its subsidiaries, preserving their independence as overseers. Directors of a company with a Nominating Committee, etc. similarly cannot double as employees. Additionally, companies with a board of directors must have at least three directors, and companies with an Audit and Supervisory Committee must have at least three committee-member directors, a majority of whom must be outside directors.

For business owners and lawyers, the practical takeaway is that appointing someone in violation of these eligibility or structural rules can render the appointment invalid or challengeable. Before finalizing board appointments, M&A restructurings, or governance overhauls, companies should screen candidates against the disqualification grounds in this article and confirm compliance with headcount and independence requirements based on the company's chosen governance structure (board of directors, audit and supervisory committee, or three-committee system). The related Article 331-2 covers special procedures for appointing adults under guardianship or curatorship as directors.

日本語での解説

Common scenarios

• ▸Screening a candidate director's criminal background before formal board appointment
• ▸Determining whether a non-public startup can require its directors to also be shareholders in its articles of incorporation
• ▸Structuring an Audit and Supervisory Committee and ensuring committee-member directors have no conflicting employee roles
• ▸Setting up governance for a newly public company that shifts from a shareholder-director requirement to open eligibility
• ▸Confirming the minimum number of directors when converting to a board-of-directors company or three-committee system during a corporate reorganization