After the latest amendment to the Securities and Exchange Law of Japan, more types of legal interest will come under the protection of the Securities Law. The Securities Law defines regulated securities as government bonds, local bonds, corporate bonds, stock certificates or other securities that represent certain interests as specified by a government ordinance. The legal interests represented by those securities will be deemed securities even if certificates are not issued for them. Also, certain legal interests that are not represented by certificates will be deemed securities and will be subject to various regulations under the Securities Law.
The amendment provides that an interest in a limited partnership established under the Limited Partnership Act for Investment (yugen sekinin kumiai) is now a deemed security. Previously, limited partnerships were confined to investment in private equity, and were not covered by the Securities Law but by the regulations set out in the Limited Partnership Act for Investment. Because limited partnerships can now invest in listed shares and other securities as well as loans, the interests in these partnerships are now protected by the regulations under the Securities Law. In addition, legal interests in similar investment vehicles established under foreign laws will be deemed securities and therefore be subject to the Securities Law. According to an official response to recent public comments, such vehicles include limited partnerships (LPs), limited liability corporations (LLCs) and limited liability partnerships (LLPs).
The scope of deemed securities has also been expanded to include an interest in a general partnership established under the Civil Code (nin-i kumiai) or a silent partnership established under the Commercial Code (tokumei kumiai) that makes various kinds of investment. Before the amendment, neither the Securities Law nor the Limited Partnership Act for Investment covered this type of legal interest.
Partnerships have been often incorporated into schemes in different types of structured finance transactions. The application of the Securities Law to partnerships will likely place additional requirements on various entities involved. For example, as the offering of an interest in a partnership used as an investment vehicle will be subject to the Securities Law, only the issuer and financial institutions permitted to engage in securities business under the Securities Law will be able to offer such interest to investors.
In line with this amendment, which took effect on December 1 2004, the government is planning to further expand the coverage of the Securities Law.