Key Laws, Regulations and Guidelines
This section provides brief explanations of key statutes, regulations, and guidelines most relevant to Japanese companies listed on the Tokyo Stock Exchange (TSE).
Corporate law
Companies Act: A statute that regulates the formation and activities of companies. It regulates not only publicly listed KK but also privately held KK, as well as other forms of business corporations, such as GK (a type of entity that is similar to US LLC). KK and GK)
Securities law
Financial Instruments and Exchange Act: A statute that regulates the operators and participants in the capital market. It includes chapters on the disclosure obligations of issuers of securities, rules regarding takeover bids (TOBs), disclosure requirements for investors holding more than 5% of a listed company, and prohibitions against market abuse, such as insider trading and market manipulation.
Listing rules (TSE)
Securities Listing Regulations: Rules established by the Tokyo Stock Exchange (TSE) that set forth the listing requirements for companies seeking to be listed on the exchange, as well as the ongoing obligations of listed companies. These rules include governance and disclosure requirements that TSE-listed companies must comply with, in addition to the statutory requirements set forth in the Companies Act and the Financial Instruments and Exchange Act.
Best practice codes and guidelines
Corporate Govenance Code (TSE)
Corporate Governance Code: A best-practice code published by the Tokyo Stock Exchange (TSE). It outlines five core corporate governance principles, accompanied by sub-principles and supplementary principles. The five core principles relate to:
- Shareholder rights and equal treatment of shareholders
- Relationship with various stakeholders such as employees, customers, suppliers, creditors, and local community
- Disclosure of information and transparency
- Responsibilities of board of directors
- Engagement with shareholders
An English translation is available on the TSE website.
Companies listed on the Prime Market or the Standard Market are required to comply with all principles, including the sub-principles and supplementary principles, on a ‘comply or explain’ basis (i.e., a company may choose not to comply by providing an explanation for its decision to opt out). In contrast, companies listed on the Growth Market are only required to comply with the core principles.
Stewardship Code (FSA)
Stewardship Code: A best-practice code published by the Financial Services Agency (FSA) as “principles for responsible institutional investors to promote sustainable growth of companies through investment and dialogue”. It sets out eight principles addressed to institutional investors who are investing in Japanese listed companies. An English translation is available on the FSA website.
Guidelines for Investor and Company Engagement: Guidelines published by the FSA as a supplemental document to the Stewardship Code and the Corporate Governance Code. An English translation is available on the FSA website.
Guidelines for Corporate Takeovers (METI)
Guidelines for Corporate Takeovers: Guidelines published by the Ministry of Economy, Trade and Industry (METI) which aim to “enhance corporate value and protect shareholders’ interests” in public takeover situations. They provide guidance to both the board of the target company and the bidder. An English translation is available on the METI website.
Fair M&A Guidelines (METI)
Fair M&A Guidelines: Guidelines published by the METI regarding management buy-outs (MBO) and similar situations where there is an inherent conflict of interest between the company’s management and public shareholders. An English translation is available on the METI website.
Foreign investment law
Foreign Exchange and Foreign Trade Act: A statute that regulates cross-border trade and the movement of capital, including filing requirements for foreign direct investments in Japanese companies.
Antitrust/Competition law
Anti-Monopoly Act: As its official name, “Act on Prohibition of Private Monopolization and Maintenance of Fair Trade”, suggests, this statute regulates anti-competitive behaviors and the concentration of economic power. It includes filing requirements for mergers and acquisitions. The authority in charge is the Fair Trade Commission (FTC).