Consistent with its plan to mold the Japanese Commercial
Code to the needs of business, the Japanese government recently
announced amendments to the laws on stock rights. From April 1
2002 two types of stock rights – detachable stock
warrants and stock options – will be replaced by a new
type of stock right: shinkabu-yoyakuken (abbreviated
to yoyakuken), meaning literally "the reserved right
to new shares".
Under the present law, detachable stock warrants must be
issued with a certificate and accompanied by an issue of bonds,
but they may be issued to anyone and are transferable without
the bonds. Stock options, on the other hand, may only be issued
to directors and employees – usually as part of an
incentive plan. Stock options are not issued with a certificate
and are non-transferable. Further, the right to have shares
issued under a stock option must be exercised within 10 years
from the date of the special resolution authorizing the stock
option. Even more restrictive is the rule that the number of
shares to be issued under all stock options, including the
number of unissued shares from previous stock options, must not
exceed 10% of the aggregate issued shares.
In contrast, yoyakuken – defined as the
right to make a company issue new shares or transfer shares
held by the company to the yoyakuken holder –
may be issued to anyone in any number without an accompanying
bond and there is no legislated time limit on exercising the
share issue right. However, a company must issue certificates
representing yoyakuken without delay or upon request
of the yoyakuken holder.
Thus, diligent corporate governance is required.
Indiscriminate issue of yoyakuken could result in
control of entities falling to unintended parties. Used
properly, however, the potential for yoyakuken is
huge. New and better tailored financial products will become
possible by combining yoyakuken with bonds and various
other securities. Companies can offer yoyakuken not
only to its own directors and employees but also to related
company directors, employees, transaction parties and investors
as incentive for favourable treatment. Yoyakuken can
also be used to appropriately alter the control of entities at
future dates – a useful tool for joint venture parties
or in defending a hostile takeover bid.
Given these benefits, yoyakuken may soon become a
prominent security in the Japanese market place.