Regulatory Developments The past few years have witnessed a number of positive changes in the regulation of the legal profession in Japan, particularly as a result of the 2005 Foreign Lawyers Law, which lifted some restrictions on the form of association through which Japanese lawyers and foreign lawyers may operate. However, significant regulatory impediments to competition still remain, preventing firms of bengoshi and gaiben already collaborating together from incorporating their firms; restricting the advice foreign lawyers can give on third-country law; and preventing a foreign firm operating in Japan from benefiting from limited liability status recognised in its home market. Discriminatory regulations impact individuals as well as firms, requiring foreign employees to gain experience in the country in which they qualified before they can be licensed as a gaiben in Japan, and restricting Japanese lawyers from giving advice in the name of a foreign employer unless one of the firm's partners is also a Japanese lawyer. So long as these regulatory impediments continue, Japanese consumers will be deprived of choice in the crucial field of legal advice, while foreign firms will be unfairly deprived of potential customers. As lawyers, the EBC Legal Services Committee follows legal developments closely. A number of significant reforms have been introduced by the Government in past years that have affected the legal structure of businesses in Japan. Foremost is the new Company Law, which generally came into force in 2006, and the new provisions enabling triangular mergers, which came into force in 2007, enabling foreign companies to use their own stock as consideration when merging with Japanese companies. This is an important step, though the liberalisation of the tax rules needs to be reviewed, as the current rules make the structure impractical for foreign companies that do not have a pre-existing substantial presence in Japan. In dealing with "poison pill" schemes, also made possible by the new Company Law, the EBC believes that excessive defensive measures should not be permitted, and priority should always be placed on the interests of existing shareholders. To avoid such defensive measures being used as tools merely to maintain the interests of existing directors, strict conditions for activating poison pills should be applied - ideally the obtaining of the approval or endorsement of outside directors (shagai torishimariyaku) for implementation of the relevant scheme. Efforts should be made to ensure that "poison pills" are not used to block constructive proposals from new bidders. In addition, consideration should be given to whether the categories of "abusive bidders", which have been identified by the METI and in the courts, are necessarily appropriate in the light of the need in Japan for an improvement in returns on assets. Another issue of concern is the application of the new rules relating to pre-approval of acquisitions of substantial interests in Japanese companies under the Foreign Exchange Law. The EBC urges the Government of Japan to ensure that the scheme is not used to restrict legitimate foreign investments in Japanese industry. Prospects for EU-Japan Economic Integration Foreign lawyers in Japan have provided a valuable service in introducing new corporate and financing techniques in Japan. They have a crucial role in the integration of both economies by providing assistance in interfacing between European and Japanese firms on cross-border investment, financial institutions investing or lending abroad, and in assisting Japanese companies wishing to access the European capital markets. Lawyers are, however, restricted in exercising their profession as legal qualifications are currently not recognised across jurisdictions and/or their activities are circumscribed by local rules. Priorities
Key Issues and Recommendations ■ Limited liability Yearly status report: new issue. Under the current rules, limited liability status is not available to lawyers in Japan. This is consistent with the traditional position of lawyers in Japan, as court lawyers, rather than as handlers of complicated international commercial transactions and conductors of due diligence activities involving potential liabilities in the trillions of yen. Limited liability status is available to European firms in European jurisdictions. In many fields, professionals in Europe and other countries have been able to operate under a regime of limited liability, subject to financial disclosures, particularly in regard to the enormous potential liabilities for firms engaged in the financial markets. In Europe it has been considered unfair to exclude lawyers from the ability to participate in the use of such structures. However in Japan, the firms have to operate through individuals and their representatives in Japan are not permitted to have the benefit of the limited liability, which exposes all law firms in Japan to an inequitable level of risk. Recommendation:
■ Bengoshi Hojin Yearly status report: new issue. Under the current rules, it is not possible for a gaiben law firm, or a joint enterprise between gaiben and bengoshi, to establish themselves as a bengoshi corporation or hojin, which means it is not permitted for such firms to open more than one office in Japan as under current legislation only a bengoshi hojin is permitted to have more than one office. As the bengoshi hojin structure was recently introduced for Japanese firms, the EBC can see no reason why restrictions should apply only to foreign law firms merely on the pretext that there does not seem to be much current interest among these firms to establish branches. Recommendation:
■ Article 821 Yearly status report: no progress. Article 821 of the Company Law provides that a foreign company cannot conduct continuous transactions through a branch in Japan if the branch constitutes the de facto principal office of the company or if the primary purpose of the foreign company is to conduct operations in Japan. The Minister of Justice has given repeated assurances, both in Parliament and through a notification, that no new regulatory restrictions should be imposed on foreign companies as a result of the new article. We remain, however, concerned that Article 821 may bring into question the legality of many branches of foreign companies in Japan that otherwise are fully recognised legal entities. Recommendation:
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