3 Ways for Foreign Companies to List in Japan

Foreign companies have three primary methods to list on Japanese securities markets.

The first approach involves a foreign company directly listing its stock, known as foreign stock from the Japanese perspective, on the Japanese securities market. However, this method has some drawbacks. Not many Japanese securities companies are permitted to handle this method, individuals who haven’t opened a foreign securities trading account cannot trade, and margin trading is unavailable. These limitations restrict the number of investors who can access the Japanese market and lead to low liquidity of the stock after listing.

The second method is to use a Japanese Depositary Receipt (JDR), a system introduced by the Tokyo Stock Exchange in November 2007. In this method, a beneficiary certificate issuing trust is established with shares of foreign companies as trust assets, and the beneficiary rights are listed. This is comparable to the American Depositary Receipt (ADR) in the U.S. and the Global Depositary Receipt (GDR) in Europe. JDRs can be traded by individuals without a foreign securities trading account and can also be used for margin trading, thus resolving the aforementioned issues.

The final method involves corporate inversion. A foreign company establishes a corporation in Japan, reorganizes the Japanese corporation to make it the ultimate parent company of the corporate group, and then lists the Japanese corporation on the Japanese securities market. Since the shares of the Japanese corporation are listed, the previously mentioned restrictions do not apply. However, depending on the capital relationship, this method may be difficult to use due to the significant tax burden incurred during the corporate inversion process.

Deciding which method to use requires thorough consideration by specialists, taking into account the specific circumstances of the foreign company.

Roles of IPO Support Players and Law Firms

IPO preparation is an effort to meet the stringent examination standards of the Tokyo Stock Exchange (TSE) in Japan, and it’s a crucial process to obtain qualifications as a listed company in the Japanese market. The examination standards consist of formal standards and substantive examination standards.

The central goal of IPO preparation in Japan is to achieve the level of a listed company in a wide range of factors such as shareholder composition, executive structure, structure and conditions of group companies, internal control systems, business content, risk management, competitive advantages and future prospects for products and services, financial statements (BS/PL), business plans and medium-term management plans, transparency of related transactions, compliance with Japanese regulations, relationships with anti-social forces, stock structure (third-party allotment, new share options, class shares, etc.), and timely disclosure of corporate information as required in Japan.

In IPO preparation within Japan, preparatory activities are needed to enhance long-term corporate value and promote sustainable growth in accordance with Japanese standards and regulations. For example, this includes the establishment of an internal audit room to organize and implement internal audits, organizational restructuring to design internal regulations and ensure legal compliance with Japanese laws, the strengthening of staff to build an appropriate internal management system, and the verification of operations.

Thus, IPO preparation in Japan is an essential step for envisioning the future of the company and building healthy growth and credibility in the Japanese market. Cooperation from various specialists, as listed below, is necessary to make the listing successful and to lay the foundation for realizing a long-term vision within the context of Japan’s unique market conditions.

• Lead Underwriting Securities Firm

  The lead underwriting securities firm plays an indispensable role in listing. It becomes involved several years before a company begins considering listing and takes on the role of lead underwriter during the preparation stage and at the time of public offering and sale. The lead underwriting securities firm offers extensive support to the listing applicant company. During the listing preparation stage, it provides advice on formulating capital policies, business plans, and organizational structures, and offers support in preparing listing application documents and advice for Tokyo Stock Exchange (TSE) examination. Moreover, it handles financial procedures and the formation of an underwriting syndicate group at the time of listing. It also takes care of the creation and submission of documents to the TSE at the time of listing application.

• Audit Firm

  The audit firm plays a significant role in the IPO preparation process. It is responsible for tasks like short reviews and audits of financial statements, and provides audit opinions for documents such as securities registration statements. It plays a vital role in conjunction with the lead underwriting securities firm and gets involved in auditing activities approximately two years before the listing.

• Law Firm

  Lawyers in law firms play a wide-ranging role in IPO support. They provide advice on organizational design based on company law, the construction of management control systems, contract relationship maintenance, labor management, and tax measures. They also handle the organization of litigation and dispute matters before listing, and get involved in dispute resolution as needed. Additionally, there are many cases where lawyers are appointed as external auditors in the composition of the board of directors.

• Other Consultants

  Other specialists are also involved in IPO support. For instance, shareholder services agencies handle the creation of shareholder registers and the processing of voting rights, and printing companies assist and provide in creating IR materials. These players collaborate to build an effective IPO support system and support the successful listing of the company.