NO&T Japan Legal Update
I. Introduction
In Japan, stock is commonly used as consideration in an acquisition, but only when the acquisition takes the form of a merger (in Japanese, ‘gappei’) (including a triangular merger) or a share exchange (in Japanese, ‘kabushiki koukan’) (including a triangular share exchange). Stock is rarely used as consideration in other types of acquisition, such as a tender offer or a private sale of stock of a target company. This is for mainly two reasons: (i) capital gains tax implications, and (ii) certain restrictive requirements under the Companies Act (Act No. 86 of 2005, as amended).
In February 2018, the Japanese Cabinet proposed to the National Diet a combination of a tax reform and an amendment to the Industrial Competitiveness Enhancement Act (Act No. 98 of 2013, as amended) (the ‘Enhancement Act’); the combination of which is expected to clear these two hurdles for specific types of transaction that have been submitted to, and authorized by, the Ministry of Economy, Trade and Industry (‘METI’). The tax reform bills passed the Diet on March 28, 2018, while the amendment to the Enhancement Act remains under deliberation at the House of Representatives. These legislative developments are expected to open the door to the use of stock as consideration in acquisitions other than mergers or share exchanges.
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