MK @ Legal Biz Leaf Notifications of Subscription Requirements
A Kabushiki-Kaisha has to give notice of determined Subscription Requirements to the persons applying for the subscriptions (investors). Specifically, the following items must be notified. The notification method is not stipulated in the law, but in practice, it is mostly done in writing or by e-mail.
(i) Trade name of the Kabushiki-Kaisha
(ii) Subscription Requirements
(iii) Place of the payment (bank name, branch name, account number, account name, etc. of the deposit account)
(iv) Other matters
Total number of shares authorized to be issued, details of class shares, etc.
Name and address of the Administrator of Shareholder Registry
Other matters that are stipulated to be notified under the contracts, etc.
Note: In practice, the latest Articles of Incorporation, Certificate of Registered Matters, and other contracts are attached.
If any of the above matters are changed after the notice is given, the changes must be notified immediately.
Applications for Shares for Subscription
Upon receipt of the above notice, the applicants shall deliver the following items in writing or by e-mail, etc. to the company.
(i) The name and address
(ii) The number of Shares for Subscription.
The company will send notices, etc. regarding the shares allotment to the address in (i) above.
*The notice will be deemed to be given to the applicants even if it is not actually delivered to him/her, as long as the company sends the notice to the address in (i) above.
Allotment of Shares for Subscription
The company determines to whom and how many shares will actually be allocated from among those who have applied for share subscriptions.
Thus, for example, even if 5,000 shares are applied from 10 subscribers, the company may allocate 4,000 shares to 8 subscribers.
However, in this case, there is a risk of causing a discrepancy in the amount of capital and capital reserve, which are part of the Subscription Requirements previously determined at the shareholders’ meeting.
If such a situation is anticipated, it is advisable to resolve the matters as below, instead of resolving on a specific amount.
“The amount of increase in capital shall be the amount obtained by multiplying the maximum amount of increase in capital as stipulated in Article 14, Paragraph 1 of the Regulation on Corporate Accounting by 0.5 (fractions are rounded up), and the remainder shall be recorded in the amount of capital reserves”
Authority to determine allotment of shares:
Companies without a Board of Directors: General meeting of shareholders (special resolution)
Companies with a Board of Directors: Board of Directors
*It is feasible to change the authority of resolution by setting a special provision in the Articles of Incorporation.
For example, even in a company without a Board of Directors, a majority decision of the Directors can be used to decide the allottees by stipulating the following in the Articles of Incorporation.
“In the offering of shares of the Company to be allotted to third persons, decisions on the matters listed in Article 204, Paragraph 1 of the Companies Act shall be made by a majority decision of the Directors.”
Benefit: In practice, in most cases, when the resolution on Subscription Requirements is made, the resolution of choosing allottees are also made at the same meeting.
On the other hand, if, for example, the allottees and the shares to be allotted are undetermined at the time of the general shareholders’ meeting, the meeting must be held again after application from the applicants arrives. In order to avoid such a hassle, it would be useful to make an amendment of the Articles of Incorporation as above at the time of the first shareholders’ meeting.
*It is also possible to return to the normal allottee-deciding authority from the next issuance of shares for subscription by also stipulating that “this paragraph shall be deleted after the lapse of (Dates) “
Notification of allottees
After the company determines the allottees, it shall notify the applicants the number of shares to be allotted by “the day before” the payment date or the first day of the payment period.
Note: under the law, it needs to be notified “by the day before” of the payment due date/ period. In other words, when conducting a third-party allotment by method of “applying for shares,” it is legally impossible for the date of the minutes of the shareholders’ meeting or the date of the application form to be on the same day as the payment due date, which means that the procedure will take at least two days or more no matter how hurriedly it is conducted.
The method to complete this process in one day is a third-party allotment based on a “total number underwriting agreement,” which will be introduced in the next article.
MK@ 06/26/2022
