Obligation to Submit Large-Scale Holding Reports in M&A

System of Large-Scale Holding Reports

Purpose of the system of Large Shareholding Reports

A person’s holding of 5% or more of the shares of a listed company can have a significant impact on the formation of the share price. There are various reasons for acquiring shares of a listed company, such as acquisition of shares through M&A, business alliance, net investment, etc. However, as an ordinary shareholder, the existence of such an investor is itself an important fact that affects investment decisions. Listed companies are required to report on the status of major shareholders in their annual securities reports and quarterly reports. However, annual securities reports and quarterly reports are disclosed at a fixed time according to the listed company’s fiscal year, etc., and not immediately after a person who has acquired 5% or more of the company’s shares appears. The purpose of the “large shareholding report” is to ensure thorough disclosure of information by requiring a person who has acquired 5% or more of a company’s shares, regardless of the reason for the acquisition, to submit a large shareholding report within 5 business days of the acquisition date. The “5% rule” is also known as the “5% rule” because it applies when a company acquires 5% or more of a company’s shares.

Obligation to Submit Large-Scale Holding Reports (Article 27-23 of the Financial Instruments and Exchange Law)

If you hold more than 5% of the share certificates, etc. (including certificates with stock acquisition rights, bonds with stock acquisition rights, etc.) of a company that issues share certificates listed on a financial instruments exchange in Japan, you are required to submit a substantial shareholding report within five business days of becoming a substantial shareholder to the head of the competent financial bureau. It is not the listed company issuing the shares that is obliged to submit the report, but the person who acquired the shares of the listed company (shareholder). As a person in charge of M&A or a person who intends to acquire a listed company, it is necessary to remember that you are obliged to submit a substantial shareholding report. If it is difficult to prepare a large-shareholding report, it may be possible to obtain advice from a professional company to prepare such a report.

Obligation to Submit a Change Report (Article 27-25 of the Financial Instruments and Exchange Law)

A change report must be submitted in the following cases

1. 1. If the shareholding ratio increases or decreases by 1% or more after the submission of a Large-Scale Shareholding Report
2. 2. When there is a change in important matters to be stated in the Large-Scale Holding Report, such as a change in name or address.

Obligation to Submit Amendment Reports (Article 27-25, Paragraph 3 of the Financial Instruments and Exchange Law)

Submission is required when amending a Large-Scale Holding Report or Amendment Report that has already been submitted.

Calculation Method of Shareholding Ratio

The percentage of shares, etc. held will be calculated based on the following formula. The number of latent shares is the number of shares that are not currently shares, such as stock acquisition rights, but will become shares if certain conditions are met.
(“Number of shares held in treasury and number of potential shares” + “Number of shares held by joint holders and number of potential shares”) / (“Total number of shares issued” + “Number of potential shares held by treasury and joint holders”)

Joint holders

In cases where there are joint holders, the shareholding ratio is calculated by adding up the shareholdings of the joint holders. Joint holders include the following persons

1. ① Persons who have agreed to jointly acquire or transfer share certificates, etc. or exercise voting rights, etc.
2. ② Married couples
3. ③ Relationship between a controlling shareholder (a person who holds more than 50% of the voting rights) and a controlled company
4. ④ Relationship between controlled companies that share the same controlling shareholder.

Report Submission Deadlines

Large Shareholding Reports and Change Reports must be submitted within five days (counting Saturdays, Sundays, holidays, etc. excluded) from the day following the day on which the reporting obligation arises.

Method of submitting reports

Large-Scale Holding Reports and Change Reports must be submitted using EDINET (EDINET: Electronic Disclosure for Investor’s NETwork). Written submissions are not allowed; those who are not registered with EDINET must register with EDINET and receive an ID and password. For information on how to prepare the form, contact the Finance Bureau or seek advice from a professional company.

Sending a copy (Article 27-27 of the Financial Instruments and Exchange Law)

When a Large Shareholding Report, a Change Report, or an Amendment Report is submitted, a copy of these documents must be sent to the following persons without delay.

1. 1. The issuer of the share certificates, etc.
2. 2. Financial instruments exchanges

Public inspection of the Report of Possession of Large Volume

Large-Scale Holding Reports are to be made available to the public for a period of five years from the date of receipt. As a result, they can be viewed by anyone during the five-year period by accessing EDINET at the EDINET terminal in the reading room of the Finance Bureau or by accessing EDINET from the Internet at home or at work.

Surcharge Payment Order under the Financial Instruments and Exchange Law（Financial Instruments and Exchange Law Article 172-7, 172-8)

Surcharge for failure to submit a Report of Possession of Large Volume or Report of Alteration of Large Volume

1. 1. Those who fail to submit a substantial shareholding report or a report of changes in substantial shareholdings by the due date
2. 2. Those who made false statements in the Report of Possession of Large Volume, Report of Change in Possession of Large Volume, or Amendment Report

Amount of surcharge

The amount will be 1/100,000 of the aggregate market value of the share certificates, etc. issued by the issuer of the share certificates, etc. subject to the Report of Possession of Large Volume.
For example, if a large-shareholding report is not filed for shares of a company with a total market value of 100 billion yen, the amount of the surcharge will be 1 million yen.

Criminal Penalties

A person who fails to submit a substantial shareholding report or a change report may be punished by imprisonment with work for not more than five years or a fine of not more than 5 million yen, or both (Article 197-2 of the Financial Instruments and Exchange Law). A person who submits a Report of Possession of Large Volume, a Change Report, or an Amendment Report with false statements may also be imprisoned for not more than five years or fined not more than five million yen, or both (Article 197-2 of the Financial Instruments and Exchange Law).