Equity investments in a public Japanese stock corporation must be made in compliance with various regulatory filing obligations. This newsletter summarizes the major reporting obligations to be observed by a foreign investor.
Regulatory Filing Obligations
Any investor (foreign or domestic) holding shares issued by a company listed on any of the stock exchanges in Japan is obliged to comply with certain filing and disclosure obligations, depending inter alia on the number of shares, the type and size of the invested company and the individual regulations of the competent stock exchange. In line with similar regulations in other countries, these regulatory requirements are closely connected with applicable tender offer regulations (which are not addressed in this newsletter) to ensure fairness and transparency of on- and off-exchange transactions by providing up-to-date information concerning the ownership of shares in listed companies. These include the following filing obligations applying to most types of equity investments in Japan.
1. Large Shareholding Report
Under the Financial Instrument and Exchange Act (FIEA), a holder of more than 5% of the issued shares in a listed company is required to issue a so-called large shareholding report (tairyo hoyu hokoku sho, LSR). The FIEA defines a person or entity as a holder of shares (Holder) if he/she:
(i) Owns shares in his/her own name or another person’s name;
(ii) Has the right to acquire shares under a sales contract, etc.;
(iii) Exercises voting rights as shareholder pursuant to a monetary trust contract or is authorized to give an instruction to the same effect, with the intent to control the business activities of the issuing company; or
(iv) Is an entity with appropriate authority to invest in shares in accordance with an investment contract, etc. or otherwise based on the applicable laws and regulations (Paragraph 3, Article 27- 23 FIEA).
a) Filing Requirements
If a Holder owns shares jointly with other persons, such persons are regarded as joint holders (Joint Holders; cf. next paragraph below) under the FIEA. The FIEA requires a Holder of more than 5% of the shares issued by a listed company (so called “Large Shareholder”), whether alone or jointly with other Joint Holders, to file an LSR with the Prime Minister (in practice, via the competent Local Financial Bureau) within 5 business days (not counting the date of acquisition) from the date the shareholding ratio exceeds 5% (so-called “5% Rule”).
According to Article 27-23 FIEA, the LSR must specify inter alia the percentage of interest held, the funds (debt or equity) used to acquire the shares, and the purpose of the acquisition. When calculating the shareholding ratio for the purpose of the LSR, also the shares held together with other Joint Holders have to be taken into account. In such case, each Joint Holder has to report in the LSR its respective joint shareholding ratio. Under the FIEA, Joint Holder shall mean a Holder who:
(i) Agreed to acquire or transfer such shares, or exercise his voting rights, jointly with a Large Shareholder;
(ii) Has a marital relationship, or controls or is controlled with more than 50% of the voting rights in or by a Large Shareholder, or is having the same controlling shareholder, etc. (shihai kabunushi to) with a Large Shareholder, or has relationship between a partnership and its parent company with a Large Shareholder; or
(iii) Otherwise has a special relationship with a Large Shareholder (such as spouse, or certain group company of the Holder).
Thus, regardless of the actual percentage of its individual shareholding, a Joint Holder is required to file an LSR if the aggregate shareholding ratio of the shares jointly held with other Joint Holders exceeds the 5% threshold under the FIEA.
Also, after filing the LSR, if a Large Shareholder decreases or increases its share by 1% or more, or in case of any material change in the content of the LSR already submitted, such Large Shareholder is required to file an amendment report within 5 business days in accordance with Paragraph 1, Article 27-25 FIEA (Amendment Report).
Both the LSR and Amendment Report must be prepared in a specific electronic format and filed electronically through the Electronic Disclosure for Investors’ Network (EDINET). The information in the report is made available online to the general public through the EDINET for 5 years from the respective filing date.
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