MK @ Legal Biz Leaf Overall flow up to the issuance of Share Options
The general flow of the issuance of Share Options to third parties for a private company (without class shares) is as follows.
1. Resolution at the general meeting of shareholders (special resolution)
The matters to be resolved are as follows (Companies Act, Article 238 Paragraph 1).
It is also possible to delegate a decision of the details to Directors or the Board of Directors by passing a resolution of delegation at the general meeting of shareholders*.
In such cases, the matters to be resolved are as shown in (☆) below.
*Only, the delegation is valid until the allotment date that is within one year from the date of the resolution of the general meeting of shareholders
(i) The features and number of the Share Options for Subscription
☆ When delegated to Directors/Board of Directors: The features and maximum number of the Share Options for Subscription
(ii) In cases where it is arranged that there is no requirement for monies to be paid in in exchange for the Share Options for Subscription, a statement to that effect
☆ When delegated to Directors/Board of Directors: The same matter
It is also possible to issue Share Options for free. Especially when Stock Options are issued to the company’s officers or employees, they are often made gratis from the viewpoint of tax qualification.
*On the other hand, a capital contribution is mandatory whenever shares are delivered upon exercise of the Share Options.
(iii) In cases other than the cases provided for in the preceding item, the Amount To Be Paid In for the Share Options for Subscription (meaning the amount of money to be paid in in exchange for one Share Option for Subscription. The same shall apply hereinafter in this Chapter.) or the method for calculating that amount;
☆When delegated to Directors/Board of Directors: Minimum amount to be paid for offered Share Options
When the issuance of Share Options requires the payment of money, the amount of money to be paid per Share Options or its calculation method shall be stipulated.
The method of payment may be changed to contribution in kind or payment by offsetting against claims held against the company with the approval of the company.
*On the other hand, the contribution in kind at the time of “exercise” of the Share Options must be stipulated in advance as part of the feature of the Share Options.
~Obligation of Explanation of Directors~
If the amount to be paid in for the offered Share Options is to be issued under particularly favorable conditions or amounts, the Directors are obliged to explain the reasons for making such an offer. The term “favorable” here does not refer only to the amount of the contributions, but is determined based on comprehensive consideration of the share price, exercise price, conditions of exercise, and the benefits the company will receive from the issuance of such Share Options, etc.
(iv) The day on which the Share Options for Subscription is allotted (Day of Allotment)
This is a date which a person becomes a holder of Share Options.
(v) If the Stock Company prescribes the date for the payment of monies in exchange for the Share Options for Subscription, that date;
Even if (iii) above is stipulated, it is optional whether or not to stipulate the payment date.
In case when a payment date is specified, the Share Options will be extinguished if the payment is not completed by the payment date.
In case when a payment date is not specified, the Share Options will be extinguished if payment is not completed by the day before the first day of the exercise period specified in (i) above.
~Relationship between the Day of Payment, Day of Allotment and Exercise Period~
In the above case, since the payment date is set before the day of allotment, the right to become a Share Options holder will be extinguished if payment is not made by 24:00 on 7/16.
In the above case, the day of payment is set after the day of allotment, so all eligible persons will become holders of Share Options as of 7/20. If payment is not made by 24:00 on 7/21, those Share Options will be extinguished.
* Even if the Share Options are extinguished, the obligation to pay for the issue remains.
In the above case, since the payment date is set after the allotment date, all eligible persons will become holders of Share Options as of 7/20. Also, since the payment date has been set, the Share Options will not be extinguished even if the first day of the exercise period arrives, but if payment is not made by 24:00 on 7/23, the Share Options will be extinguished. Until the payment is completed, the rights cannot be exercised by the holders.
(vi) In cases where Share Options for Subscription are attached to Bonds with Share Option, the matters listed in each item of Article 676;
If Share Options are attached to corporate bonds, the contents of the corporate bonds must also be stipulated.
(vii) In the cases provided for in the preceding item, if the Stock Company otherwise provides for the method for submission of a demand under the provisions of Article 118(1), Article 777(1), Article 787(1), or Article 808(1) with respect to the Share Options for Subscription attached to the Bonds with Share Option under that item, that provision.
When a purchase demand for Share Options with corporate bond is made in compliance with legal requirements, in principle it is necessary to make a purchase demand for the bond portion as well. However, it is also possible not to make a purchase demand for the bond portion by setting a separate stipulation at the time of issuance.
2. Notifications of Subscription Requirements
The company shall notify the subscriber of Share Options about the following information. If any of the matters are changed after the notice is given, the changes must be notified immediately.
i. The trade name of the company
ii. The Subscription Requirements (matters of 1 above)
iii. Place of payment upon exercise of Share Options
iv. Matters stipulated in Companies Act Enforcement Regulations Article 54
・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.
3. Applications for Share Options Subscription
Upon receipt of the above notice, the applicants shall deliver the following items in writing or by e-mail, etc. to the company. In the case of an offering of Share Options with corporate bonds, it will also regard as an application for the bonds.
i. The name and address
ii. The number of Shares for Subscription
The company will send notices, etc. regarding the allotment to the address in (i) above. Also, 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.
4. Allotment of Share Options Subscription
The company determines to whom and how many shares will actually be allocated from among those who have applied for share subscriptions. For example, even if 50 units of Share Options are applied from to 10 persons, the company may allocate 40 units to 8 persons.
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.
5. Notification of allotment
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
Third-party allotment using the method of “underwriting agreement”
If a company enters into a general underwriting agreement with the underwriters, the procedures described in 2-5 above are no longer required. In this case, the above-mentioned authorities (4 above) shall pass a resolution approving the conclusion of a general underwriting agreement.
MK@ 07/17/2022
