This content is from: Local Insights

Japan: New cash out method

Tomohiro Okumura
Amendments to the Companies Act (Amendments) will come into force on May 1 2015, in which a new form of cash out will be included. Under the Amendments, the special controlling shareholder (a shareholder who holds nine-tenths or more of the voting power of all shareholders of the company) may demand that the other shareholders sell their shares of the company to the special controlling shareholder (a so-called demand for sale). By using a demand for sale, a shareholder who holds the majority vote may force minority shareholders out of the company.

Conventionally, the method that is used for such a purpose is for the company to issue and acquire class shares by a resolution of the shareholders meeting. However, since this method necessitates the holding of a shareholders meeting, it is burdensome for a company.

In order to exercise a demand for sale, under the Amendments, certain procedures are followed. First, the special controlling shareholder gives notice to the company, setting out a description of the amount of cash to be delivered for the minority shareholder's shares and the date when the special controlling shareholder will acquire such shares, among other details. Second, the approval of the company (substantially the board of directors) must be obtained. Third, the company must give notice to the special controlling shareholder and minority shareholders indicating that such approval has been obtained. It is not necessary to hold a shareholders meeting to exercise a demand for sale. Accordingly, the time expenditure and economic burden on the company will be reduced by this new form of cash out.

It is expected that cash outs will increase as a result of the Amendments. It will be necessary to observe whether the new form of cash out works in practice, paying close attention to relevant activities as it becomes increasingly used.

Tomohiro Okumura

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