Public Notice: What is it and what do we have to publish?

What is “Public Notice”? 

All Kabushiki-Kaisha (KK) are required to register the “method of public notice” on their corporate registry. This might sound unfamiliar to those of whom are from USA or other countries where the public notification is not mandated by law.
Judicial scriveners often tend to not explain about it in detail, at the time of incorporation. And, unless there is a specific request from the client, they would set it as “by the official gazette (kanpo),” the most regularly used method.

However, I believe it is important to at least have a brief idea of this provision and to know what information will be publicly announced. So let’s take a look at it together.

There are two main types of contents in public notices; Statutory Public Notices (Hotei-kokoku)and Settlement of Accounts Public Notice (Kessan-kokoku).

The two main types of contents in public notices

Statutory Public Notices (Hotei Kokoku)

Statutory Public Notices are the announcements of companies which are required by law to be published.
There are several occasions when such announcements must be published:

Merger, company Split, entity conversion, etc.
During the process of a merger, company split, entity conversion, etc., it will be necessary to give legal public notice (Note: There are exceptions).For example, in the case of an absorption-type merger, the dissolving company is required to give public notice at least one month prior to the effective date of merger. This process is done mainly to protect a company’s creditors, giving them advance notice to raise any objections to the company being dissolved. In principle, the company cannot complete the corporate registration for the merger unless the notification process has begun.

Reduction of capital
There are many reasons for a company to reduce its registered capital (shihon-kin), one of which is to save on taxes.
When the registered capital of a company exceeds 100 million JPY on the closing date of the fiscal year, the corporate tax rate will be increased from the following year. Therefore, companies that have received a large number of investments tend to rush to start the procedures for capital reduction before the closing date of the fiscal term. However, the capital reduction process requires the statutory public notices one month prior to the effective date, in order to protect the company’s creditors. The reason for this protection is because a capital reduction allows a company to transfer the reduced amount of capital to their surplus, which would make it easier for them to pay dividends to shareholders and, hence, reduce the net assets of the company.

Settlement of Accounts Public Notice (Kessan-kokoku)

KK are obliged to to publish their content of the balance sheets after the ordinary general meeting of shareholders.(For companies with registered capital (Shihon-kin) of 500 million JPY or more or total liabilities of 20 billion JPY or more, a Profit and Loss statement will also need to be published.)

The purpose of this requirement is to allow shareholders, creditors and those who are about to enter into business transactions with the company to understand their financial condition.
*The financial results of a parent company are not required to be published.
*Companies such as listed companies and companies that disclose their financial statements on their websites are not required to publish this information.

I am sometimes asked by my client, whether they “really” have to do this annual process or not. To be honest, this is a very tough question to answer since only a small percent of even Japanese KK are obeying this law. Although, the Companies Act in Japan provides for penalties of up to 1 million JPY for violating the code, in reality, no companies have ever been punished for this. However, the regulations may become stricter in the future; also, there is no doubt that this obligation is stipulated by Japanese law. Therefore, when I receive such an inquiry, I always say, “If you ask ‘me (= judicial scrivener, a specialist in the law)’ that question, the answer is “yes”.

Note: In the event of a merger, capital reduction, etc., it is mandatory to give a settlement of accounts public notice along with the statutory public notices. So, if the company has not published a public notice of accounts after the ordinary general meeting of shareholders, there is an alternative method of publishing these two at the same time.

Conclusion

Although the “method of public notice” is not something you are aware of at the time of incorporation, as the company continues to operate, there will be the times when public notices must actually be given.

It is highly important to have knowledge about the method of public notice, since some important procedures, such as mergers, may have to be suspended if the notification procedures have not been taken legitimately.

Or if you are still unfamiliar with the law of Japan, then at least remember to request a judicial scrivener or other specialist as early as possible when you are planning to reduce capitals or to start M&A process.

MK@ 03/19/2022