Simultaneous Procedures of Capital Reduction and Capital Increase

Simultaneous Procedures of Capital Reduction and Capital Increase

One of the purposes of reducing capital is to reduce the amount of capital to 100 million yen or less to avoid an increase in the size-based standard tax.
In this regard, it will be meaningless if the capital amount exceeds the said amount due to a capital increase (share allocation) just before the fiscal year end.
Therefore, it can be used a method of making the capital reduction and increase takes effect at the same time.

Special provisions when increasing and decreasing capital at the same time

In case when the amount of capital is reduced concurrently with the capital increasement and if the result amount of capital is not less than the previous capital, the capital reduction may be resolved by a resolution of the Board of Directors or Directors.

In the above example, if item 1 is stated as ” Amount of capital to be increased: 100 million yen” and Item 2 is stated as ” Amount of capital to be reduced: 100 million yen,” the amount of capital as of the effective date will be the same amount as the current capital (100 million + 100 million – 100 million = 100 million).

Therefore, as a result, the above Item 2 can be resolved at a meeting of the Board of Directors or decision by Directors.

Necessity of Registration

When there is a change in the amount of capital, an application for registration shall be filed within two weeks of the effective date in principle. An application for registration is required even if the amount of capital after the effective date has not changed from before the effective date as in the above example.

On the certificate of registered matters, both the capital increase and the capital reduction will be recorded as follows:
Registration of capital increase: Amount of capital 200 million yen, changed on September 30, 2022
Registration of capital reduction: Amount of capital 100 million yen, change of capital on September 30, 2022

Importance of creditor protection procedures

Although a capital increase and a capital reduction can take effect on the same day, the procedures for a capital increase must be completed by the payment date (or within the payment period), while the procedures for a capital reduction must be completed by the effective date with a creditor protection period of at least one month. The more procedures are carried out at the same time, the more things need to be done in advance, so care must be taken to manage the schedule.

Sample Schedule

For a privately held company when the method of public notice is “Official Gazette

1. Resolution by the Board of Directors/ Determination of Directors regarding:
2. Items of the meeting
3. Convocation of the general shareholders’ meeting.
4. Application to the Official Gazette of:
5. Public notice of financial statements
6. Public notice of reduction in the amount of capital)
7. Sending of notice of convocation of a general meeting of shareholders
8. Publication of notice in the official gazette and dispatching individual notice to known creditors
9. Expiration of the period for creditor protection procedures (at least one month after publication in the Official Gazette and individual notification)
10. Resolution of the general meeting of shareholders regarding:
11. The issuance of shares allotment
12. The reduction of the amount of capital
13. Conclusion of agreement to underwrite the total number of shares
14. Contribution of the investing amount to the company (Effective date of the performance of the capital increase)
    Effective date of the reduction in the amount of stated capital
15. Application for registration

MK@ 08/04/2022