The new Corporate Law to be introduced in the coming year will be a blend of existing legal provisions dealing with corporations. The Justice Ministry intends to submit the bill to the Diet during the ordinary session that begins in January.

Over a decade of dizzying changes in the corporate world that have affected businesses since the bursting of the economic bubble in the early 1990s, provisions in the Commercial Law have been changed nearly every year. Because these makeshift changes to the laws were piled on one after another, the existing laws governing corporations have become complex and unwieldy.

The new Corporate Law will incorporate various provisions that are now part of the Commercial Law, the Limited-Liability Company Law and other legislation. It will aim to unify this legal mishmash into a coherent whole, with the goal of making it easier for corporations to do business.

The draft outline prepared by a subcommittee of the Legislative Council, an advisory panel to the Justice Minister, embodies its authors' ambitious intentions.

One aim is to make it easy to set up new ventures. It sets the minimum limit on equity capital required to set up a corporation at a single yen. And because corporations will no longer be classified by their levels of equity capital, limited-liability companies will be integrated into joint-stock companies.

The new law will permit the establishment of joint-stock companies whose shareholders assume responsibility only to the extent of the capital they have paid in. In addition, it will permit the setting up of ``joint companies,'' which have the characteristics of both a joint-stock company and an union in which all participants join in the management. The aim is to make things easier for such ventures, which rely on both the funds and the expert knowledge that the founders bring.

While the old Commercial Law emphasized regulation of corporate behavior, the draft of the new Corporate Law takes a contrary view, moving toward freer enterprise.

Today, many corporations created in the early postwar years are going through generational changes, with many even forced to close down. And few new businesses are being established. The economy is losing steam, and this new law is intended to meet these challenges.

One concern of the Japan Federation of Bar Associations, however, is that looser regulations could harm shareholders. Obviously, if one can set up a joint stock company without enough equity capital to keep it operating, it will also be a simple matter to overstate one's creditworthiness. That is a real risk.

It is also noteworthy that the draft outline, in keeping with the opinion of business leaders, includes strict conditions on the filing of derivative lawsuits-measures designed to protect businesses, not stockholders. For instance, if a court thinks that a plaintiff intends to damage a company or gain undue profit, it can refuse to hear the plaintiff's case. Such provisions could work against shareholders who are critical of the management.

Most important is that the law be designed to ensure companies follow the rules and prevent wrongdoing, while also allowing enough freedom to pursue successful business activities.

The draft bill calls for requiring large companies to set up internal watchdogs to prevent illegalities, and small companies to hire tax accountants and certified public accountants to oversee the preparation and disclosure of its financial statements. We hope the Legislative Council will also consider upgrading the role of shareholders in supervising management.

If it becomes too easy to divide and reorganize companies, soon shareholders will be faced with a large number of subsidiaries over which they will have no say. Shareholders in a parent company should have a means by which they can hold the subsidiary's management accountable.

With the loosening of regulations on companies, more lawsuits will result. There will be a greater need for judges with broad knowledge of the business world who can make efficient yet fair judgments on corporate matters. To meet this rise in demand, the government must also facilitate the appointment of lawyers as judges.

--The Asahi Shimbun, Dec. 24(IHT/Asahi: December 25,2004)