A new corporate law plan in Japan will place some restrictions on shareholders and lets courts dismiss cases, in a bow to the wishes of the commercial community.

The new corporation law places some restrictions on the rights of shareholders to sue and allows courts to dismiss certain cases, in a bow to the wishes of the business community.

The Legislative Council, an advisory body to the justice minister, met on Wednesday and drew up a draft for the new corporation law, which will unify the rules governing the corporation system.

The council plans to decide on the outline of the law by the end of October and submit it to the minister as early as the beginning of 2005.

The Ministry of Justice will then present the draft in next year’s Diet session, with the aim of bringing the law into effect in fiscal 2006.

For shareholder lawsuits, the proposed draft allows the courts to dismiss cases in which shareholders seek to acquire profits improperly for themselves or others, or when lawsuits are filed with the intent to cause damage to the company.

Also, shareholders will not be allowed to sue when it is judged that the burden or damage that the company would sustain due to the lawsuit is great and the company’s legitimate profits would be hurt.

The draft also offers protection for shareholders in light of the increase in corporate realignments. For example, even if the company that a shareholder is suing becomes a wholly owned subsidiary of another company, the shareholder will not lose eligibility as a plaintiff as long as that person owns shares in the parent company.