1. It is absolutely necessary to be fully prepared for the succession of management rights of an unlisted company.
In recent years, it is said that the “presidents” are aging[*1] and presidents of small and medium enterprises are notably older when they leave their office[*2]. More than 90% of companies in Japan are small and medium enterprises and many of them are unlisted stock companies. It is often the case that shareholders of an unlisted stock company are the proprietor and his or her family members. Therefore, succession of management rights of such company is characterized by succession of family members in addition to succession of business and ownership. In recent years, succession of management rights by non-relatives such as employees and through M&A transactions is also increasing in addition to succession by relatives; therefore, matters for consideration are increasing further. Also, when a dispute over business assets or the right of management occurs, there is a risk of deterioration of relationships with employees and business connections and collapse of credit.
Therefore, in the succession of management rights of an unlisted company, it is absolutely necessary to make careful preparation upon taking various interests into consideration.
[*1] Teikoku Databank, Ltd., Analysis of Presidents Nationwide, January 29, 2015.
The average age of presidents is 59.0, which is 5 years older than 54.0 in 1990.
[*2]Teikoku Databank, Ltd., Fact-finding survey of small and medium enterprises having gone through business succession, June 26, 2013.
23.8% of the former proprietors of companies having gone through business succession were “65 ~ 69 years old,” marking first place. 78.0% are 60 or older, and 30.8% are 70 or older.
2. More than 60% of corporations are not prepared for the succession of management rights
However, according to Teikoku Databank’s survey dated July 11, 2013, 30.0% of companies “have no plan” for moving forward with succession of management rights and 32.4% “have a plan but have not yet launched it,” which show that more than 60% of companies are making no efforts for succession of management rights. It seems that they recognize the importance of succession of management rights but they have not started the preparation yet, and this is the present state of unlisted companies in Japan.
3. There have been tragic cases caused due to failures to make advance preparations for the succession of management rights.
If an inheritance from an owner-president occurs when there is no advance preparation for the succession of management rights, the company is likely to be involved in deep-rooted and complicated disputes and trials. Lately, U&P also has been receiving an increasing number of requests concerning disputes or trials involving management rights or the stock value of unlisted companies. Particularly, in the case of unlisted companies with large internal reserves, inheritance tax assessment of shares can be significantly high, and, in such case, minority shareholders who inherit such shares in the company without advance preparation could fall in a tragic situation of being forced to sell their own house in order to pay the inheritance tax.
4. U&P is well experienced in handling succession of management rights of unlisted companies.
U&P, as a law firm that handles wide range of business law, has abundant experience in providing guidance for shareholders meetings, stock price assessment proceedings and court proceeding involving corporate control, and is capable of properly and expeditiously addressing all kinds of legal issues that may arise in relation to the succession of management rights of unlisted companies on both the company’s side and the heir’s side. U&P actually has experience representing the company or the heirs in providing support to the current management of unlisted companies in making advance preparation for the succession of management rights and properly resolving cases of inheritance issues that occurred when the preparation was insufficient.
If you need assistance regarding succession of management rights of an unlisted company, please feel safe to talk to us.