1.Incorporation

Q3 (No Board or Corporate Auditors)

We prefer to operate the company with minimal people. What are the disadvantages if we decide not to have a board of directors or corporate auditors?

If the company doesn’t have a board of directors, the authority of the shareholders will be stronger. In principle, the shareholders would be able to determine every matter. Each shareholder would have the right to propose agenda items and matters for resolution, regardless of the number of shares held by a shareholder. This would increase the level of involvement of the shareholders in the management of the company. This may not be the preferred structure if you are an entrepreneur with outside investors, but could be a viable option for a wholly-owned subsidiary.

Also, if there are no corporate auditors, a majority of the directors would not be able to exempt directors from certain liabilities (Companies Act, Article 426). And, without corporate auditors, the shareholders’ audit authority would increase. For example, a shareholder would have the ability to convene a board of directors meeting.

Accordingly, in choosing the appropriate corporate governance structure, in addition to considering whether or not you can find appropriate candidates as directors and corporate auditors, you should also consider the level of freedom you want from the shareholders in the day-to-day management of the company. Of course, you can always start with a simple structure, without a board of directors and corporate auditors, and change the structure later as you find qualified candidates for the directors and corporate auditors.

(Posted: January 27, 2012)