Newsletter
DIRECTORS OF SIN-GLE-SHAREHOLDER COMPA-NIES SUBJECT TO RESTRIC-TIONS ON DUAL REPRESENTA-TION
In an interpretation dated 20 March 2007, the Ministry of Justice stated that according to the provisions of the Company Act, a shareholder that represents a company may not represent the company when conducting a legal transaction with the company on his own or another's behalf, except when repaying debts to the company. This provision restricting dual representation and self-representation also applies to sin-gle-shareholder limited companies, and, mutatis mutandis, to directors of limited companies.
Similarly, the Civil Code provides that an agent may not conduct a legal transaction between himself and his principal without his principal's consent, and if he is also an agent for a third party, he may not conduct a legal transaction between his principal and the third party without his principal's consent. But these restrictions do not apply if the transaction concerned is exclusively in performance of an obligation. The legislative intent behind this prohibition on dual represen-tation and self-representation is to protect prin-cipals' interests by avoiding conflict of interest and by discouraging agents from putting their own interests before those of their principals. If a legal transaction has been consented to by the principal or is purely for the performance of an obligation, there is no conflict of interest, and accordingly an exception is made from the pro-hibition.
This exception does not apply to other legal transactions that are purely to the principal's le-gal advantage, but because there is no conflict of interest in such cases, it follows that a prohibition on such transactions should be unnecessary. For this reason, the view taken both in academic circles and by legal practitioners is that the scope of application of the provisions prohibiting dual representation and self-representation should be interpreted purposively and restrictively—in other words, the courts should interpret their scope of application narrowly, and with refer-ence to the intended purpose of the legislation.
Based on the legislative intent of the above pro-visions of the Company Act and the Civil Code, the MOJ argues in its interpretation that if the representative of a single-shareholder limited company assigns his privately owned patent or trademark rights freely to the company, or, as a trademark owner, is willing to provide a state-ment of consent to trademark registration to the company, then the company that is the recipient of such a donation or consent gains only legal benefit from the transaction, and there is no conflict of interest. Accordingly, the prohibition on dual representation and self-representation should not apply.