If a non-Japanese corporation plans to grant stock options in Japan (e.g., grant of stock options to its officers or employees of its Japanese subsidiary), it is essential to comply with Japanese securities regulations. This article provides an overview of the applicable regulations, assuming the company has not previously conducted a public offering of equity securities in Japan.

Key Considerations for Securities Regulation Compliance

Granting stock options in Japan without due consideration of securities regulations could trigger the requirement to file a securities registration statement. This filing obligation entails significant ongoing compliance requirements, including:

1. Periodic Reporting
Filing annual and semiannual securities reports, as well as extraordinary reports in certain situations.

2. Audited Financial Statements
All financial statements included in these filings must be audited by certified public accountants.

3. Legal and Administrative Costs
Retaining a Japanese attorney with expertise in securities regulations and fulfilling these obligations can result in substantial ongoing expenses.

Exemptions to Filing Requirements

Certain scenarios allow companies to avoid the burden of filing a securities registration statement:

1. Grants to the Issuer’s Group Executives or Employees
If the stock options are granted to certain executives (including director and statutory auditors) or employees of the issuer company, a wholly owned subsidiary of the issuer, or its wholly owned subsidiary, the filing requirement is not triggered.
On November 26, 2024, the Japanese Financial Services Agency (FSA) proposed expanding this exemption to cover all subsidiaries of the issuer, regardless of whether they are directly or indirectly owned, or wholly or partially owned. It is essential to monitor whether and when this proposed amendment is implemented as originally drafted.

2. Private Placement to a Small Number of Executives or Employees
Companies can utilize the “Private Placement to Small Number of Investors” exemption if the total number of executives or employees in Japan who have been granted stock options (including grants made within the past six months) is 49 or fewer.
This count includes officers or employees eligible to subscribe to the stock option, even if they do not ultimately do so.

Disclaimer: This column intends to provide a high-level summary of the subject matter, and it does not aim to provide exhaustive information. Also, this column is for informational purposes only and does not constitute legal advice. For specific issues, we recommend consulting an expert. If you have any query, please contact us via inquiry form in this homepage.