JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
Investment Management Regulations Similar to the Marketing Regulations, general part - ners of partnership-type funds that have one or more Japanese investors are generally required to register with the FSA as a Type II “Investment Management Business Operator” (IMBO) or perfect an exemption from registration, although a broader set of exemp - tions may be available than under the Marketing Regulations. It generally takes longer to register as a Type II IMBO than to register as a Type II FIBO; as a result, foreign private equity funds often seek to rely on exemptions from the IMBO registration obligation to the extent available. Exemptions There are three main exemptions used by general partners of partnership-type funds: • the Article 63 Exemption under the FIEA; • the so-called “de minimis” exemption; and • a foreign investor exemption that was introduced in 2021. Article 63 Exemption One of the more frequently used exemptions avail - able under both the Marketing Regulations and the Investment Management Regulations is the Exemp - tion for Special Business Activities for Qualified Insti - tutional Investors, stipulated in Article 63 of the FIEA (the Article 63 Exemption) (a general partner relying on this exemption is referred to herein as an “Article 63 Exempted Operator”). Perfecting this exemption permits an eligible general partner of a fund with Japa - nese investors to engage in both marketing activities (including offering the interests in a fund to Japanese investors) and investment management activities in Japan. The general partner can perfect this exemption by making a “Form 20” notice filing with the FSA. The documents required to perfect the Article 63 Exemp - tion can be submitted to the FSA in English. Generally, the Article 63 Exemption requires that: • at least one of the fund’s investors is a “Qualified Institutional Investor” (QII); • the fund has no more than 49 Japanese investors who are not QIIs;
• each Japanese non-QII investor is an Eligible Non- QII; • none of the Japanese investors is deemed a “disqualified investor”, including investors who are collective investment schemes (eg, fund-of-funds) that do not qualify for certain exemptions; • the general partner submits a copy of its organi - sational document (articles of incorporation, LLC agreement, etc); • officers and certain employees of the general part - ner submit their resume (CV) to the FSA and certify their compliance with certain eligibility require - ments prescribed by the FIEA; • the partnership interests are subject to certain transfer restrictions; and • if the general partner is not a Japan resident, a local representative in Japan (who will be respon - sible for communication with the FSA) is appointed by the general partner. In addition, the general partner will be required to comply with certain ongoing obligations under the FIEA, including: • submitting a business report together with its bal - ance sheet and profit and loss statements to the FSA within three months of the end of each fiscal year; • making certain parts of its Form 20 and the busi - ness report available to the public (eg, on its web - site); and • promptly filing an amended Form 20 after any relevant changes and/or submitting a copy of the general partner’s updated organisational docu - ments if it is updated. Article 63 Exempted Operators are also subject to supervision and enforcement by the FSA, including with respect to reporting requirements, on-site inspec - tions and business improvement orders or business suspension orders. For purposes of counting the number of investors in determining eligibility for the Article 63 Exemption, the exemption looks through fund-of-funds to the ultimate upper-tier investors, which must be included in count - ing the number of investors for purposes of the 49 non-QII investor threshold. Moreover, certain types of
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