Shareholders’limited liability principle, as one of the most peculiar aspects of joint stock company, is understood to have been derived from characteristics of separation of ownership and management system. In other words, the reason why shareholde...
Shareholders’limited liability principle, as one of the most peculiar aspects of joint stock company, is understood to have been derived from characteristics of separation of ownership and management system. In other words, the reason why shareholders do not take responsibility for company’s liability in excess of contributed capital despite of shareholders’ position as the practical owner of the company, is interpreted as the facts that shareholders do not directly participate in company management by just indirect participation through shareholder’s meeting and management of company is entrusted to representative director and directors who could mainly be classified as professional manager.
Hence, all responsibilities arising from company management (loss to company as well as third parties) are borne by representative director and directors on joint and several basis. Those who are responsible in this regard (auditor and auditors etc.) also fall on the same footing with representative director and directors.
Traditional theories explain that the representative director and directors are taking responsibility for all risks of company management on behalf of shareholders based on manager’s responsibility by entrustment, in other words duty of due care pursuant to the Civil Code, as they have been entrusted company management from the shareholders or by the company. Furthermore, as duty of loyalty by directors has been enacted these days, responsibilities of representative director and directors are explained as being based on already established duty of care and loyalty. In case representative director or directors are regarded as in breach of these duty of care and loyalty in the course of business, they are deemed to be liable to responsibility from director’s indolence of duty (On this point, Korea has same legislative system with Japan).
However, there are legislative limitations that no guidance has been established in existing statute law, nor can be established on what behaviors of directors become susceptible to breach of duty of care and loyalty of directors. Hence, this matter can be decided as recognizable or not only by the positive law, But also on this point, we can find that decision guideline has not been consistently applied in judicial precedents so far.
The two Japanese judicial precedents (Tokyo District Court, September 28, 2004 decision and October 12, 2004 decision of the same court) considered in this paper, are the cases where directors’responsibilities were denied, by widely interpreting directors’ management decision making discretionary power based on existing theories in Japan. As the matter handled by the case was the questioning of directors’responsibility due to loss from failure after the company decided to advance out to overseas markets, this matter is recognizable as can be extended to globalization age. Accordingly, it is worth and meaningful to review the structure and decision guideline on responsibility of directors arising from breach of duty of care and loyalty.
Hence this paper annotated the above cases by current theories of Japan, and tried to seek lawful decision making guidelines for directors’ management with conviction, on the premise that the theories may be repeated in Korea.