Different types of share under Japanese corporate law

February 6, 2010  |  Corporate law

Sanzen-in paper

Recent years has seen a real revolution in Japanese corporate law and one area is the greatly increased flexibility in the different types of shares that can be issued.  For tax purposes ownership of 100% of all classes of shares is a requirement to tax consolidate a subsidiar however the share types are used in a variety of transactions – poison pills, minority squeeze outs, that of course have tax implications and that will be explored in later posts.

Article 108 of the CL allows companies to issue more than one type of share.  A company issuing more than two types of share under its articles of association (teikan/定款) is called a shurui kabishiki hakkou kaishi/種類株式発行会社 – a ‘Company Issuing Types of Shares’ could be a decent translation.  The table below summarises these types:

Type of shareEnglish translationComments
優先株式・劣後株式Preferred, Subordinated SharesShares that are either preferred to other shares with respect to rights of distribution of surplus or liquidation distribution or that are subordinate to ordinary shares.
議決権制限株式Shares with Limited Voting RightsShares with rights at a shareholders meeting that are different from those of other shares
譲渡制限株式Shares with Limited Transfer RightsShares where approval from the shareholders is required for their acquisition on transfer
取得請求権付株式Shares with Rights of RepurchaseShares where the shareholders concerned have rights to require the issuing company to repurchase the shares
取得条項付株式Shares with Attached Repurchase ConditionsShares that can be purchased by the company from the shareholders concerned when certain specified conditions are met.
全部取得条項付種類株式Shares with Attached Repurchase Conditions (Whole Class)Shares that, on a resolution in the shareholders meeting, the whole class can be acquired from the shareholders by the company. Such shares are often used in Japanese minority squeeze out processes
拒否権付株式Shares with Attached Refusal RightsFor certain matters that would normally require resolution in a shareholders meeting in addition to such resolution, the approval of the shareholders holding this class of shares is also required
役員選任権付株式Shares with Attached Rights to Elect DirectorsFor companies all of whose shares have limits relating to transfer (exlcuding iinkai secchi kaisha/委員会設置会社) then a resolution in a shareholders meeting is required of shareholders holding these shares for the appointment of directors or the statutory auditor)

The issue of multiple types of shares

A company has to record the rights and number of different types of shares in its company articles (CL 108(2) however it is possible to issue such shares without first determining the rights in the articles.   In such circumstances then prior to the first issue of the shares it is necessary to hold a shareholders meeting (for companies that have established a ボアboard of directors – torrishimeyakkaisechikaisha/取締役会設置会社 at either shareholders or board meeting) then the terms can be determined for inclusion in the articles.

The process for issue of a second or further type of shares is basically the same as a normal issue.   If there is a concern that the issue of shares could harm the interests of shareholders of other classes of shares then from the point of view of protecting shareholder rights a determination may be required in a meeting of the affected shareholders.

Cancellation of share rights

Under the corporate law the cancellation of shares is only recognised under the procedured to cancel your own shares – jikokabushiki no syoukyaku/自己株式の消却.  The type of shares and for each share type the number of shares would of course have to be determined.

Exercise of rights of different types of shares

For shares where the shareholders have rights of redemption as expected the shareholders have to make clear the number and type of shares of each class where redemption is required.

For shares where the company has the right to require redemption on the occurance of certain defined events then one the event occurs without delay the company is required to without delay to notify the shareholders or registered holders that the facts have occured through notification or public notice.  In cases where the company has determined a date for redemption in advance notification is required two months in advance.

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