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General Corporate

Key Schemes in M&A for Care Service Providers and Their Differences

General Corporate

Key Schemes in M&A for Care Service Providers and Their Differences

The nursing care industry, personalityized by a structure dominated by small business owners, is a sector where mergers and acquisitions (M&A) are particularly active. This is due to various external factors such as intensified competition among facilities for the elderly following the amendment of the Japanese Act on Securing Stable Living for the Elderly (2011), chronic labor shortages and rising recruitment costs, and the triennial revision of nursing care fees.

In the nursing care industry, a typical example of M&A involves a seller with a business facility ‘selling’ that facility to a buyer. However, the ‘sale’ scheme should be considered on a case-by-case basis. It is necessary to explore the best solution for the specific case, whether it be business transfer, company division, merger, or transfer of the seller company’s shares, among various methods.

We will explain the main schemes for M&A in the nursing care business and provide an overview of each scheme.

Business Transfer as an M&A Target for (Part of) a Business

Business Transfer as an M&A Target for a 'Part of a Business'

What is a Business Transfer?

A business transfer is a method where a seller transfers a part (or all) of a ‘business unit’ within their operations to a buyer. For instance, if the seller operates multiple businesses, such as other business locations or, in some cases, non-care related businesses, and wishes to target only a specific business location for M&A, a business transfer is the typical approach to use.

Unlike a ‘merger’, which involves the wholesale succession of a company’s assets and liabilities, a business transfer involves the succession of the seller’s assets, liabilities, and transactional positions through individual contracts. Therefore, a business transfer can be considered a bundle of individual sales contracts. In other words, if a seller operates multiple businesses and wishes to transfer only a part of them to a buyer, they cannot use a scheme like a merger and must instead employ a business transfer or a company split, which will be discussed later.

Related article: Explaining the Procedures of M&A ‘Business Transfers’: Advantages, Disadvantages, and Points of Caution[ja]

The procedures for conducting a business transfer differ between stock companies and social welfare corporations.

Business Transfers in Stock Companies and Social Welfare Corporations

First, in the case of a stock company, a resolution by the board of directors or a special resolution at the shareholders’ meeting is required.

Next, for social welfare corporations, the Social Welfare Law does not stipulate provisions for business transfers, so the procedures similar to those for stock companies are not necessary. However, it is important to note that if a business transfer results in changes to the basic assets (owned real estate used as facilities, etc.) that are directly necessary for conducting social welfare activities and are specified in the articles of incorporation, then an amendment to the articles of incorporation is required.

Furthermore, amendments to the articles of incorporation for social welfare corporations generally require a resolution by the council of representatives and approval by the prefectural governor. The same applies to the disposition of basic assets, which also requires a resolution by the council of representatives and approval by the prefectural governor.

Points of Caution When Transferring a Care Business

In the case of care businesses, where property acquisition through subsidies is common, attention must be paid to whether the assets targeted for business transfer include property acquired with national government subsidies. Such property is prohibited from being used contrary to the purpose of the subsidy grant, and therefore, in principle, cannot be sold (disposed of) to a third party (buyer). In such cases, it is generally necessary to apply for property disposition approval from the Minister of Health, Labour and Welfare before the business transfer. This approval must be obtained before the transfer, that is, before the execution of the business transfer, so it is necessary to set the schedule appropriately in relation to the overall business transfer process.

Corporate Spin-Offs in M&A Targeting ‘Parts of a Company’

In M&A transactions from one corporation to another, a scheme known as a corporate spin-off can be used to carve out a ‘specific business unit (including related ownership rights, receivables, contractual relationships, etc.)’ from the seller’s company and have it acquired by the buyer. When the carved-out business becomes a new corporation, it is referred to as an incorporation-type spin-off, and when the carved-out business becomes part of the buyer company’s operations, it is called an absorption-type spin-off.

Business transfers and corporate spin-offs are often compared as two ‘similar yet different’ methods in M&A transactions between corporations, not limited to the nursing care business. As mentioned in the article below, under the Japanese Corporate Law (会社法), corporate spin-offs, which are organizational restructuring actions, allow for the comprehensive succession of assets without obtaining individual creditor consent. Therefore, a creditor protection procedure is legally established, which involves notifying creditors in advance about the restructuring and accepting any objections they may raise.

Related Article: The Pros and Cons of Business Transfers and Corporate Spin-Offs You Should Know[ja]

While business transfers involve the transfer of individually listed assets, receivables, contracts, etc., known as individual succession, corporate spin-offs involve what is called comprehensive succession, where assets are transferred in their entirety. Consequently, there is no need to renegotiate employment contracts with employees; the employment contracts that the seller has with each employee are naturally succeeded by the buyer.

Both procedures have their advantages and disadvantages, as well as points to be cautious about, so it is necessary to design the scheme with these factors in mind.

Mergers Involving the Entirety of a Company or Social Welfare Corporation as M&A Targets

Mergers Involving the Entirety of a Company or Social Welfare Corporation as M&A Targets

When a seller transfers the entirety of their business to a buyer, the common methods used are absorption mergers, consolidation mergers, or share transfers.

An absorption merger (or consolidation merger) is a method where the corporate entity of the seller, be it a stock company or a social welfare corporation, is dissolved, and all of its business operations are absorbed by the buyer. This means that not only the business units targeted by the M&A but also other operations, such as different business locations or, in some cases, non-care related businesses, will also become part of the M&A targets.

While absorption mergers (or consolidation mergers) are possible between stock companies or between social welfare corporations, they cannot be conducted between entities of different organizational forms, such as between a stock company and a social welfare corporation. In an absorption merger, the buyer’s corporate entity continues to exist and absorbs the seller’s entity. In a consolidation merger, both the seller’s and buyer’s entities are absorbed by a newly established corporation.

In the case of absorption mergers (or consolidation mergers) between stock companies, a special resolution at the shareholders’ meeting is required, while for social welfare corporations, an approval resolution from the board of councilors is necessary. Similar to business transfers, there may be a need for changes to the articles of incorporation or for approval applications.

Specific to the care industry, as with the aforementioned business transfers, there may be a need to apply to the competent authorities for merger approval applications or changes to the articles of incorporation.

Share Transfer as a Means of M&A Involving the “Entirety of a Company”

When the seller is a corporation and intends to transfer all of its business to the buyer, the most straightforward method is not through a narrow definition of M&A, such as absorption or consolidation mergers under the Japanese Companies Act, but rather through the transfer of shares. Since shares represent fragments of the corporation’s value, transferring all the shares effectively transfers all the business operations of that corporation. By acquiring all the shares of the seller corporation, the buyer corporation can create a structure where the buyer becomes the parent company and the seller becomes a wholly-owned subsidiary.

In this scenario, there is no need to alter the corporate entity or the businesses owned by each entity; only the shareholders of the seller corporation change. Therefore, in principle, various procedures other than those related to the change of shareholders, such as creditor protection procedures or applications for permits and approvals, are not necessary.

Furthermore, since social welfare corporations do not have concepts such as “shares” or “investments,” changing the members of the board of councilors or the board of directors can effectively change the actual owners or business operators, thereby substantively conducting an “M&A.”


Care providers considering business succession through M&A, as well as M&A specialists, need to understand the basic content and differences of each scheme.

However, the procedures required in practice are extremely complex. Furthermore, in large-scale business transfers or company splits, legal, accounting, and tax due diligence are essential for risk avoidance.

Therefore, we recommend consulting with a lawyer at an early stage when actually implementing M&A. It is also common to seek the involvement of certified public accountants and tax accountants for tax and accounting matters.

Guidance on Measures by Our Firm

The caregiving industry is governed by a complex web of laws, including the Japanese Long-Term Care Insurance Act, the Japanese Elderly Welfare Act, and the Japanese Companies Act. Monolith Law Office serves as legal advisors to the General Incorporated Association National Federation of Caregivers and to caregiving service providers across all prefectures nationwide, possessing extensive know-how in laws related to caregiving businesses.

Areas of practice at Monolith Law Office: Stock & M&A Related Legal Services[ja]

Managing Attorney: Toki Kawase

The Editor in Chief: Managing Attorney: Toki Kawase

An expert in IT-related legal affairs in Japan who established MONOLITH LAW OFFICE and serves as its managing attorney. Formerly an IT engineer, he has been involved in the management of IT companies. Served as legal counsel to more than 100 companies, ranging from top-tier organizations to seed-stage Startups.

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