JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
3. Regulatory Framework 3.1 Primary Regulators and Regulatory Issues Under the Act on Prohibition of Private Monopolisa - tion and Maintenance of Fair Trade (the “Anti-Monop - oly Act”), the acquisition of a company or business with Japanese domestic turnover can be subject to pre-transaction notification to – and clearance from – the Japan Fair Trade Commission (JFTC). A stock acquisition is subject to such requirement if: • either a) or b) below is met: (a) the acquirer holds 20% or less of the voting rights prior to the transaction, but will hold more than 20% of the voting rights thereafter; or (b) the acquirer holds 50% or less of the voting rights prior to the transaction, but will hold more than 50% of the voting rights thereafter; and • the consolidated domestic turnover of the ultimate parent company of the acquirer (without taking into account the turnover of the target and its subsidi - aries) exceeds JPY20 billion; and • the consolidated domestic turnover of the target exceeds JPY5 billion. There are comparable rules (with slightly different turnover thresholds) that apply to asset acquisitions, mergers, demergers and other types of business com - bination transactions. Depending on the fund struc - ture, the domestic turnover of the portfolio companies of a private equity fund may be aggregated in applying the thresholds. The statutory waiting period after the notification is 30 days, which may be shortened by the JFTC upon request, assuming there is no substantive competi - tion issue. On the other hand, if the JFTC identifies any competition issue, it may extend the period and request additional information from the acquirer. In addition to the mandatory filing, the JFTC recom - mends acquirers to consult the JFTC before the trans - action if:
expected. Not all private equity buyers would be able to propose a stock-for-stock acquisition, but these tax changes have added more options for acquisition consideration. Under the Companies Act, there are two statutory means for stock-for-stock acquisitions, namely, a “stock-for-stock exchange” ( kabushiki kokan ) and “share delivery” ( kabushiki kofu ). A stock-for-stock exchange can only be adopted when the acquirer intends to acquire all the issued shares of the target, while a share delivery is a similar exchange transaction introduced in 2021 and can be used when a Japanese corporation plans to acquire only part of the issued shares of another Japanese target if the target is not a subsidiary of the acquirer prior to the transaction, but will become a subsidiary following it. The tax amendment in April 2021 granted tax deferral on capital gains on the stock consideration received as a result of a share delivery, as long as the acquirer’s shares account for 80% or more of the total consid - eration. Exercise of tax-qualified stock options upon M&A made easy In 2024, there was a tax amendment to facilitate acceleration of tax-qualified stock options upon an M&A (trade sale). Prior to the amendment, a holder of a stock option was required to deposit the shares acquired through the exercise of the stock option to a securities company until the sale of the shares, even if the shares were unlisted, in order to secure the tax- qualified status of a stock option exercised upon an M&A. As a result, in an M&A where the stock options were to be exercised and the shares acquired through the exercise were to be sold to the purchaser momen - tarily after the exercise, the engagement of a security firm was still required for that momentary deposit. Together with the fact that not many security firms accept a deposit of unlisted shares, this made the exercise of stock options upon an M&A cumbersome. Following the amendment, while the deposit of shares is still required, the deposit can be made to the issuer and managed internally without engaging a third-party security firm, which is expected to facilitate the exer - cise of stock options upon M&A, such as trade sales of start-ups.
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