JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
10.3 IPO Under the Tokyo Stock Exchange’s listing rules, shareholders that were allotted shares within a one- year period prior to the last date of the business year immediately before the IPO application date are sub - ject to a lock-up period of six months after the IPO (or one year after such allotment). In addition, underwrit - ers will require major shareholders of the company to execute lock-up letters that prohibit the disposal of shares for a certain period after the date of the IPO (most commonly 180 days). After these lock-up peri - ods, shareholders are allowed to freely sell the shares in the market. In Japan, controlling shareholders and target compa - nies will not enter into relationship agreements, but listing rules and disclosure requirements are designed to provide governance over the relationship between the controlling shareholder and the target company.
with relatively small market capitalisation. An M&A/ IPO dual-track process (ie, running an M&A sale track alongside an IPO track) is sometimes seen in Japan, but is not as popular as in other jurisdictions. An M&A/IPO/recapitalisation triple-track process is not yet common in Japan. Reinvestment by private equity sellers upon exit is not common practice. 10.2 Drag and Tag Rights Drag-along arrangements are typical in shareholders’ agreements between private equity shareholders and management shareholders. While it depends on nego - tiations, drag-along rights of private equity funds can also be found in shareholders’ agreements between private equity and institutional co-investors. Key terms of the drag rights are not substantially different from those agreed in non-private equity transactions. The typical drag threshold would be the sale of a control - ling stake in the portfolio company. In some cases, the drag-along rights of private equi - ty shareholders are coupled with the management shareholders’ tag-along rights, which may be exer - cised upon the sale of all or a controlling stake by the private equity fund. The thresholds of the tag rights are typically not substantially different between man - agement and institutional investors.
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