It is said that the monetary assets kept by the Japanese individuals are as much as 140000 billion JPY (approximately 1400 billion USD). The amount is the second biggest in the world, just next to that kept by the American individuals. However, more than a half of that amount is held in cash or in the form of deposits in the savings accounts. Only 10% of that amount is invested in the businesses.
While the Japanese stock market has been floundering for more than 10 years, the Japanese depositors are suffering from the interest rate almost as low as zero percent, seeking for good investments. However, most of their money stays at savings accounts in the Japanese Banking System, which is now fragile and vulnerable. They do not know what to do with their money, as Japanese are in general not financially intelligent and sometimes desperately too conservative to take risks. It seems that everyone still fears the nightmare of the crash of the early 1990s.
If foreign businesses with high growth potentials could raise funds from such huge amount of the monetary assets owned by the Japanese individuals, it should be of great benefit not only to such foreign businesses but also to the Japanese investors who cannot obtain good revenues from investments in Japanese companies.
As most of the monetary assets of the Japanese individuals is held in the deposit of the banks or similar financial institutions, the Japanese companies, even in their early stages, traditionally raise funds from loans. If the company has some assets for collateral, it can obtain loans from banks. Even a small business in the early stage, with no collaterals or sufficient business performance, can raise funds from the governmental financial institutions.
However, since the recession started in the early 1990s, the huge bad loans have withheld the Japanese banks from financing businesses, which especially affects small businesses.
At the same time, some IPO (initial public offering) cases of the start-up businesses or ventures in the fields of information technology and biotechnology were attracted the people’s attention in Japan. For example, the IPO of Yahoo! Japan (incorporated in January 1996) was conducted as early as November 1997. The stock price of Yahoo! Japan reached 100 million JPY in January 2000. Not only Japanese investors were fascinated by such cases but also the management of the computer-related business ventures started to seek for opportunities of equity finance.
In Japan, there are three ways of equity finance.
1. Through stock market (listing in the stock exchange, registration in the OTC market, IPO)
2. Selling stocks in the so-called “Green Sheet” market.
3. Private Offering
There five securities exchanges in Japan. Among them, Tokyo, Osaka and Nagoya Securities Exchanges are considered the three principal exchanges. In addition, the OTC Market (over-the-counter market) is operated by Japan Securities Dealers Association. The OTC Market is now called JASDAQ. They are securities markets operated under the provisions of Securities Exchange Law.
Today, these markets are trying hard to support IPOs of emerging businesses. Each of the five securities exchanges has its own market specialized for emerging businesses. Such trend was due to the impact of the cooperation between NASDAQ and Osaka Securities Exchange (although the cooperation ended in December 2002). Among these markets for emerging businesses, the most important one is “Mothers” section of Tokyo Securities Exchange (“Mothers” is the abbreviation of Market of the High-Growth and Emerging Stock). The initial listing requirements of these stock markets for emerging businesses are said to be among the least strict ones in the world.
Requirements are still less strict when stocks are sold in the private market which is not subject to the provisions of Securities Exchange Law.
Such private market means that unlisted stocks usually not allowed for public offering are continuously sold and purchased through a certain securities companies if such stocks satisfy the standard stipulated by Japan Securities Dealers Association.
The so-called “Green Sheet” Market is such a private market. The model of this private market is the Pink Sheet Market in the United States. Basically, the only requirements for the company to sell stocks through Green Sheet Market are audit and disclosure. It is said that the company utilizes this system it can raise funds of 50 million to 200 million JPY for comparatively lower cost. As of January 2004, seventy-nine companies are registered in this private market.
If the stocks or bonds are offered privately for less than 50 persons to raise funds of 100 million JPY or less, such “Private Offering” is not regulated by the law. However, such offering of the stocks or bonds must be described in the Business Register.
Such “equity finance” is an attractive way to create a value from nothing, but needless to say it is only the corporations that can conduct fund-raising through equity. It is said, however, that Japan is one of the countries where incorporation is the most difficult in the world, as with a certain exception at least 10 million JPY must be paid in as a capital for formation of a joint-stock corporation.
In Japan, however, there is a legally approved system for fund-raising which can be conducted not only a company but also an individual and is comparatively similar to the public offering of the equity. Such scheme is conducted through the “Anonymous Partnership,” which is provided for in the Japanese Commercial Code.
An Anonymous Partnership is formed by the individual agreement entered into by and between the operator carrying out the business and the contributor. The business and the contribution by the contributors are owned by the operator. However, each of the contributors is entitled to receive distributions of the profit according to the amount of his/her contribution on the pro rata basis (if there is any loss, such loss is distributed in the same way within the contribution).
In this scheme, all the rights and obligations on the business are vested in the operator while the contributors are directly involved in the business. Accordingly, the existence of the contributors is invisible from the outside. This is why such partnership is considered “anonymous.”
The advantage of utilizing the Anonymous Partnership scheme for fund-raising is that it enables public offering without any legal restrictions. In the case of offering the private equity, the Japanese law does not allow the company to offer its stocks publicly through the Internet or advertising. By using the Anonymous Partnership scheme, however, it is legally possible to advertise in the Internet or newspapers for soliciting for contributions.
In Japan, the Anonymous Partnership is a fund-raising scheme which has lately become popular for its convenience. This scheme is utilized principally for raising funds for research and development activities, real estate businesses, venture capitals and entertainment businesses such as film productions.
à Resources Books on Japan [Law]
List of Recently Promulgated Japanese Laws
English Translations of Major Japanese Laws
Civil Code Commercial Code Law Application Principles Act Banking Act Investment Trust and Investment Corporation Act Foreign Exchange and Foreign Trade Act Business Registration Act Customs Act Customs Tariff Act Foreign Lawyers Act
Japanese Business Information