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V.Registration and public announcement of change and pledge of equity of directors, supervisors, officer and major shareholders
- Prior registration:
"Prior registration" is required as a limitation on the assignment of shareholding by an insider of a stock issuing company under Article 22-2 of the Securities and Exchange Act, as analyzed below:
- Persons required to file prior registration:
These persons are insiders of a publicly held company, including directors, supervisors, officers and major. shareholders holding more than 10% of the shares in the company. In calculating the shareholding of an insider, shares held by its spouse and minors and those held in another person's name are included. Pursuant to Article 2 of the Securities and Exchange Act Enforcement Rules, the term "shares held in another person's name" means the following:
- Directly or indirectly provides stocks to a third party or provides funds to a third party for the purchase of such stocks.
- Be entitled to manage, utilize, or dispose the stocks held under the name of a third party.
- Be allocated the complete or partial portions of profits or losses of stocks held under the name of a third party.
- Ways of assignment of shares by insiders:
- assignment to the public following approval from or an effective registration with the FSC, for example, as is common in the event of release of government stock by a state-run enterprise for privatization purpose.
- no registration is required of an assignment on a centralized exchange or over-the-counter market of shares totaling not more than 10,000 shares per exchange day; assignment of more than 10,000 shares shall be effected at least three days following registration with the FSC, satisfy the holding period requirement and be within the daily transfer allowance ratio prescribed by the FSC.
- assignment by means of private placement to designated persons satisfying the conditions prescribed by the FSC, within three days following registration with the FSC. Any assignment of the assigned stock by such persons within one year shall still be effected in the manner specified in Subparagraph A, B or C, to prevent their swift assignment that may create a legal loophole.
- Violation of assignment restrictions by an insider:
An insider of a company shall bear administrative liability in accordance with Article 178, Paragraph 1, Subparagraph 1 of the Securities and Exchange Act if it assigns its shares against this article.
- Subsequent filing:
Subsequent filing is stipulated by Article 25 of the Securities and Exchange Act, which provides that an insider of an issuer shall make a filing with or give notice to the issuer after any change in or pledge of its shares, and that the issuer must make a filing with the FSC and make a public announcement, as analyzed below:
- Persons required to make a subsequent filing:
Publicly held companies and their insiders. The term "insiders" is as defined in Article 22-2 of the Securities and Exchange Act.
- Time of filing and public announcement:
- Upon registering the public issuance of its shares, a company shall file with the FSC and announce to the public the class and numbers of the company's shares held by its insiders.
- The insiders shall file, by the fifth day of each month, a report with the issuer of the changes in the number of shares they held in the preceding month. The issuer shall compile and file such report of changes with the FSC by the 15th day of each month. The FSC may order an issuer to make public announcement of such information should it deem the measure necessary.
- When the shares held by an insider are pledged, the pledgor shall give immediate notice to the issuer; the issuer shall make a filing with the FSC and publicly announce such pledge within five days of the pledge.
- Violation of the obligation to make a filing or public announcement:
A company or an insider thereof shall bear administrative liability according to Article 178, Paragraph 1, Subparagraph 2 of the Securities and Exchange Act for any violation of the obligation to make a filing or public announcement under this article. In such case, the FSC shall, in addition to duly imposing an administrative fine, order the company or insider to comply within a prescribed time period; where the company or insider fails to comply within the specified period, the FSC may order a new period for compliance and impose additional an administrative fine for each successive failure to comply (Securities and Exchange Act §178II).
- Minimum percentage of stock held by directors and supervisors
To instill a concept of shared interests in a company's directors and supervisors and the company in order to boost operating performance, ensure the soundness of the capital structure of the company, and increase benefits to investors, Article 26 of the Securities and Exchange Act provides that the total shares of registered stocks held by the entire body of either directors or supervisors of a publicly held company shall not be less than the percentage prescribed by the Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies:
- The prescribed minimum percentage of registered stock held by the entire body of directors and supervisors varies among different companies based on the paid-in capital.
- The total registered shares held by the directors and supervisors are determined based on entries inscribed on the shareholders' list or on the proof of shares deposited with a centralized securities depositary, provided shares which have been transferred but the transferee has not completed the transfer procedures shall be deducted.
- With the exception of independent directors, all directors and supervisors shall make up any deficiency within a month after assuming office if their shareholding upon their election falls short of the prescribed percentage.
- If during their term of office, any director or supervisor transfers its shares or leaves office, such that the total shareholding of all the directors and supervisors as a whole is less than the prescribed percentage, all the directors and supervisors other than independent directors shall make up the shortfall within a month of notice given by the company or FSC.
- The FSC may from time to time dispatch personnel to examine and audit records on the change in shareholdings of directors or supervisors and to examine the relevant records and accounts. Violators are punished in accordance with Article 178, Paragraph 1, Subparagraph 6, and Paragraph 2, of the Securities and Exchange Act.
- Public tender offer (Securities and Exchange Act §43-1):
- Filing of massive acquisition:
To prepare issuers, investors and the FSC for any material change in the equity of a company, any person who acquires more than 10% of the total issued shares of a public company either individually or jointly with other persons shall make a filing according to FSC requirements within ten days after such acquisition, and shall file timely amendment when there are changes in the matters reported. Such stipulation is the same as that under U.S. laws, which only requires a filing be made within 10 days after acquisition, unlike that under Japanese laws, which requires that the filing take effect before the public tender offer may proceed (Securities and Exchange Act §43-1I).
Violators of the obligation to make a filing are punished in accordance with Article 178, Paragraph 1, Subparagraph 2, and Article 179, of the Securities and Exchange Act.
- Regulation:
Any public tender offer to purchase the securities of a public company bypassing the centralized securities exchange market or the over-the-counter market is governed by Article 43-1, Paragraph 2, Articles 43-2 to 43-5, of the Securities and Exchange Act, as analyzed below:
A.Meaning and scope of public tender offer
- Meaning:
Article 43-1, Paragraph 4 of the Securities and Exchange Act amended February 2002 grants the FSC the power to establish the Regulations Governing Public Tender Offers for Securities of Public Companies ("Public Tender Offer Regulations"), authorizing the FSC to prescribe the scope, conditions, period, related parties, and particulars for filing and public announcement of a public tender offer, as well as the percentage and conditions of a compulsory public tender offer. As defined by Article 2I of the Public Tender Offer Regulations, public tender offer means purchase of securities from unspecified persons bypassing the centralized securities exchange market or the over-the-counter (OTC) markets, and instead using public announcement, advertisement, radio broadcast, telecommunication, letters, telephone, presentation show, explanation delivering or other methods to make a public offer.
- Securities governed by the Public Tender Offer Regulations:
Issued shares, new shares entitlement certificates, warrants, preferred shares attached with warrants, convertible corporate bonds, corporate bonds attached with warrants, depositary receipts, and any other securities approved by the FSC of a company which has already completed the public issuance or supplemental public issuance of the above-mentioned securities in accordance with the Public Tender Offer Regulations (Public Tender Offer Regulations §2II).
- Any public tender offer to purchase the securities of a public company bypassing the centralized securities exchange or over-the-counter market, in principle, may be conducted only after being reported to the FSC and publicly announced (Securities and Exchange Act §43-1II).
- Summary public tender offer: A public tender offer is not required to be reported to the FSC and publicly announced under the following circumstances (exceptions in Securities and Exchange Act §43-1II):
- The number of securities proposed for public tender offer by the offeror plus the total number of securities of the public company already obtained by the offeror and its related parties do not exceed 5% of the total number of voting shares issued by the public company.
- The securities purchased by the offeror through the public tender offer are securities of a company of which the offeror holds more than 50% of the issued voting shares.
- Other circumstances in conformity with the regulations prescribed by the FSC.
- Compulsory public tender offer
To avoid massive acquisition which may affect the prices of individual stock markets, the amendment of the Securities and Exchange Act in February 2002 has drawn reference from U.K. instances of legislation and incorporated a provision on compulsory public tender offers: Any person who individually or jointly with another person(s) intends to acquire within 50 days shares accounting for 20% or more of the total issued shares of a public company shall employ a public tender offer to do so (Securities and Exchange Act §43-1III and Public Tender Offer Regulations §11).
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