Public Notice of Settlement of Accounts in Kabushiki-Kaisha

All Kabushiki-Kaisha (a stock company) are required by Article 440 of the Companies Act to “give public notice of its balance sheet (or, for a Large Company, its balance sheet and profit and loss statement) without delay after the conclusion of the annual shareholders meeting.

In practice, there are many small and medium-sized companies that fail to comply with these public notification requirements. However, the Companies Act provides for an administrative penalty (a non-penal fine of up to 1,000,000 yen) for the violation of the law.

In addition, when foreign companies buy or sell Japanese subsidiaries, there are cases where lawyers who are in charge of due diligence of the buyer side points out that the seller’s Japanese subsidiary has neglected this obligation. Since the due diligence staff is naturally unaware of Japanese corporate practices, they may simply assume that the Japanese subsidiary is in violation of local laws and regulations.

To avoid such situation, this article explains how to make an Public Notice of Settlement of Accounts (in case of Private Companies).

(1) Find out the size of your company

The scope of public notice differs depending on the size of the company as follows.

For large companies: Balance Sheet + Profits and Loss Statement
For other than large companies: Balance sheet

A “Large Company” is a Kabushiki-Kaisha that falls under one of the following categories.
(a) The amount of the stated capital in the balance sheet as of the end of its Most Recent Business Year is 500,000,000 yen or more; or
(b) The total sum of the amounts in the liabilities section of the balance sheet as of the end of its Most Recent Business Year is 20,000,000,000 yen or more;

(2) Find out the method of public notice

In addition to (1) above, the scope and period of public notice differ depending on the method of public notice.
Kanpo (Official Gazette) or Daily Newspaper: Summary of balance sheet (plus profit and loss statement for large companies)
Electronic public notice (Website): Full balance sheet (plus profit and loss statement for large companies) for 5 years

For most of companies it is often reluctant to publish their full balance sheets for five years. For such companies, it is recommended to change the method of public notice to the “Official Gazette” (the Articles of Incorporation must be changed and the registration procedure must be completed).

(3) Prepare a Balance Sheet and Profit and Loss Statement approved at the annual shareholders meeting*

(*For companies that have an independent auditor, a “report” is sufficient instead of “approval” at the annual shareholders’ meeting.)

In the case of electronic public notices, a company can just post the full content of Balance Sheet (and Profit and Loss Statement) in their website (URL written on the corporate registry).

In the case of a Kanpo or daily newspaper, the necessary information shall be extracted from the balance sheet and a draft of the public notice shall be prepared.

Summary of a Balance Sheet

The following is a summary of a balance sheet that contains the minimum necessary information (for privately held companies).

Although you may need to ask a Japanese specialist to prepare the actual draft, it is important to know at least what is included in such public notices.
Since there are not so many Japanese companies that fall under the category of a large company, this article only explains about the summary of a Balance Sheet.

Basic Rules

1. The following items may be deleted where the amount is 0.
2. Monetary amounts:
In principle_ millions of yen / billions of yen.
In practice _ if the amount of each item is not large, it may be stated in units of 1,000 yen or 1 yen.
Important: The following is an English translation that generally applies to items on the balance sheet in Japan. Please prepare your draft of public notices according to Japanese accounting items.

資産の部 (Assets)

　1. 流動資産 (Current assets)
　2. 固定資産 (Fixed assets)
　3. 繰延資産 (Deferred assets)

負債の部 (Liabilities)*

*If there is a provision among liabilities, it must be listed separately from other liabilities items.
E.g.) provision for bonuses, provision for directors’ bonuses, provision for retirement benefits, etc.

　1. 流動負債 (Current liabilities)
　2. 固定負債 (Fixed liabilities)

純資産の部 (Net Assets)

The section where the column is shifted to right is the breakdown of each Item.
E.g.) Capital reserve + Other capital surplus = Capital surplus

　1. 株主資本 (Shareholders’ equity)
　　　資本金 (Capital stock)
　　　新株式申込証拠金 (Application Money for Stock)
　　　資本剰余金 (Capital surplus)
　　　　資本準備金 (Capital reserve)
　　　　その他資本剰余金 (Other capital surplus)
　　　利益剰余金 (Retained Earnings)
　　　　利益準備金 (Earned reserve)
　　　　その他利益剰余金 (Other retained earnings)
　　　自己株式 (Treasury stock)
　　　自己株式申込証拠金 (Application Money for Treasury stock)
　2. 評価・換算差額等 (Valuation and Translation Adjustments)
　　　その他有価証券評価差額金 (Valuation difference on available-for-sale securities)
　　　繰延ヘッジ損益 (Deferred gains or losses on hedges)
　　　土地再評価差額金 (Revaluation reserve for land)
　3. 新株予約権 (Share Option rights)

Additional Information:
Write of the following at the bottom of Retained Earnings section.
This statement is not required if the profit and loss statement is disclosed.

Net income or Net loss

(4) Reservation for publication

Submit an application form with the draft of above (3) for publication to a publisher. In the case of the Kanpo, it takes about 10 business days from the time of application, so please make sure to ask a specialist in advance.

A sample of the published kanpo:インターネット版官報 (npb.go.jp)

MK @ 10/15/2022