In most Japan acquisitions, share transfer (株式譲渡, stock purchase) is the default: it is faster, keeps licenses and contracts intact, and gives individual sellers a lower tax rate. Business transfer (事業譲渡, asset purchase) is the exception, chosen when the buyer needs to isolate undisclosed liabilities, is carving out a business unit, or the tax step-up on acquired assets outweighs the added friction of re-consenting contracts and employees.
What Decides the Structure? The Question Behind Everything Else#
When acquiring a Japanese business, one of the first decisions is how to structure the transaction: buy the shares of the target company, or buy the assets and business operations directly.
This choice is called the deal structure. In Japan, the two dominant forms are:
- Kabu-shiki joto (株式譲渡) is a share transfer (stock purchase). The buyer purchases the seller's equity stake. The target company itself continues to exist, with its contracts, licenses, liabilities, and history intact.
- Jigyo joto (事業譲渡) is a business transfer (asset purchase). The buyer purchases specific assets and assumes specific liabilities. The selling entity continues to exist and retains what was not transferred.
Japan M&A uses both structures regularly. The right choice depends on what the buyer wants to acquire, what liabilities exist, the seller's tax position, and regulatory considerations specific to the target's industry.
Structure at a Glance#
| Factor | Share Transfer (株式譲渡) | Business Transfer (事業譲渡) |
|---|---|---|
| What transfers | All shares (100% or partial stake) | Specified assets, contracts, employees, IP |
| What the buyer inherits | All assets AND all liabilities (including hidden ones) | Only the agreed-upon assets and assumed liabilities |
| Contracts and licenses | Transfer automatically with the company | Must be individually assigned (counterparty consent required) |
| Employees | Remain employed by the target (no new employment contracts needed) | Must be individually re-hired or transferred under new contracts |
| Seller tax treatment | Capital gains on share sale (often favourable) | Corporate-level tax on transfer gains + shareholder dividend tax on distribution |
| Buyer tax treatment | No step-up in asset basis (depreciation on historical book values) | Asset step-up possible (new depreciation base from purchase price) |
| Approval requirements | Board resolution (KK); sometimes shareholder approval for large stakes | Board resolution + shareholder special resolution (特別決議) required under the Companies Act |
| Speed | Generally faster | Slower: individual contract assignments, employee re-onboarding |
| FEFTA | Triggers screening if acquirer is foreign and target is in designated industry | Triggers screening if the transferred assets constitute a business in a designated sector |
How Does a Share Transfer (株式譲渡) Work in Japan?#
In a share transfer, the seller transfers ownership of their shares (or a controlling stake) to the buyer. After closing, the buyer is the new shareholder. The target company's legal existence, registered name, contracts, licenses, bank accounts, and employee relationships are unchanged.
What the buyer gets
The buyer gets everything, which is the defining feature of a share transfer: the buyer steps into the seller's position as shareholder and indirectly owns everything the target company owns, including:
- All commercial contracts (client agreements, supplier agreements, leases)
- All regulatory licenses and permits (import/export registrations, product certifications, financial licenses)
- All employee employment relationships
- All bank accounts and credit facilities
- All intellectual property registered in the company's name
The buyer also gets all liabilities. This is the risk that drives due diligence in share deals: the buyer inherits all existing liabilities, including:
- Tax liabilities not yet assessed
- Pending or threatened litigation
- Employment disputes
- Off-balance-sheet obligations
- Environmental liabilities (relevant for manufacturing and real property)
- Warranty or product liability exposure from past sales
Approval mechanics for a Japanese KK share transfer
For a private KK (株式会社) where share transfers are restricted by the articles (which is common for closely held companies), the board of directors must approve the transfer (Companies Act (会社法) Article 136). Some articles require shareholder approval. The parties agree a share transfer agreement (株式譲渡契約書), complete transfer registration, and the seller's shares are re-registered in the buyer's name.
When share transfer is preferred
Share transfer is the dominant structure in Japan SME M&A, particularly in succession (事業承継) deals. The reasons:
- Sellers prefer it for tax reasons. Individual sellers pay capital gains tax on share sale proceeds. At the time of writing, the rate on listed share gains is approximately 20%, and private company shares sold by an individual are taxed at a similar rate. This is materially lower than the tax cost of a business transfer (which creates corporate-level gains, then a dividend distribution to the shareholder, stacking two levels of tax).
- The target company retains its contracts, licenses, and banking relationships, so the buyer does not need to re-negotiate customer agreements or re-apply for permits.
- It is faster: the transaction involves fewer moving parts than individually assigning assets and obtaining third-party consents.
Buyers accept it because Japanese target companies typically have manageable, identifiable liabilities when properly diligenced, and because license and contract continuity is commercially valuable.
How Does a Business Transfer (事業譲渡) Work in Japan?#
A business transfer moves a defined bundle of assets, contracts, IP, inventory, and employees from the selling entity to the buyer. The target company itself is not acquired; the buyer is acquiring what is inside it.
What the buyer gets
Only what is specified in the agreement. The buyer and seller negotiate which assets transfer, which liabilities the buyer assumes, and which remain with the seller.
Buyers typically acquire the following in a 事業譲渡:
- Specified equipment, inventory, and fixed assets
- Identified customer contracts and supplier contracts (with counterparty consent)
- Named employees (who must individually consent to transfer under Japan's labour law framework)
- Intellectual property (trademarks, patents, software licences)
- The business name and goodwill
The following typically stay with the seller:
- Liabilities not expressly assumed
- Employees who decline to transfer
- Contracts whose counterparties do not consent to assignment
- Cash and financial instruments (unless specified)
Corporate approval requirements
A business transfer is a significant corporate action under the Companies Act (会社法). If the transfer involves a substantial portion of the company's business (Companies Act Article 467), it requires a shareholder special resolution (特別決議): approval by at least two-thirds of voting shares at a shareholders' meeting. This requirement applies to both the seller and, in some circumstances, the buyer.
Objecting minority shareholders have statutory appraisal rights (株式買取請求権) to demand that the company purchase their shares at fair value.
Employee transfer mechanics
Japan's labour law framework (Labor Contract Act (労働契約法)) does not automatically transfer employment contracts in a business transfer the way UK TUPE or EU Transfer Directive rules operate. Each employee must individually consent to transfer. An employee who declines is not automatically dismissed: the seller must handle that employee under Japan's standard redundancy rules, which are demanding.
For a business transfer involving a workforce, the buyer must therefore secure employee consent before or at closing. Resistance from key employees can materially affect the value of the transaction.
When business transfer is preferred
- The buyer wants to acquire the operating business without inheriting undisclosed liabilities (environmental, tax, litigation). By defining precisely what transfers, the buyer limits exposure.
- In a carve-out, a corporate seller divesting a business unit may not own a standalone share to sell; the assets and operations are embedded in a larger entity. Business transfer is the mechanism for carving them out.
- If the target KK has significant debt, accumulated losses, or disputed liabilities, the buyer may prefer to acquire only the operating assets and build a clean entity.
- Certain licenses do not transfer automatically and must be re-applied for regardless of structure. If all key licenses need re-application anyway, the continuity advantage of a share deal disappears, and a business transfer may be equally practical.
Which Structure Is More Tax-Efficient in Japan?#
Seller's Perspective
On a share transfer, individual sellers pay capital gains tax at approximately 20% (income tax + resident tax). This is typically the most tax-efficient outcome for owner-operators selling their company.
Corporate sellers (a Japan company selling shares of a subsidiary) pay corporate tax on the gain at approximately 23.2% plus local corporate taxes. However, the qualifying shareholding deduction (受取配当等の益金不算入) for dividends, and certain conditions under the group relief regime, may apply.
Under a business transfer, the target company pays corporate tax on the gain from transferring assets above book value. The seller then distributes the proceeds to shareholders, which triggers dividend withholding tax (or income tax on dividends). This double taxation is why individual sellers strongly prefer share transfers.
Buyer's Perspective
A buyer in a share transfer acquires the target at the transaction price, but for tax depreciation purposes, the assets inside the company remain at their historical book values. There is no step-up in asset basis. The buyer cannot create new depreciation deductions from the premium paid over book value (goodwill is not separately depreciable in a share deal under Japan's tax rules).
Business-transfer buyers record the acquired assets at transaction price (fair market value). If this exceeds book value, the excess may be recognised as goodwill (のれん) for accounting purposes. Tax-deductible goodwill amortisation is available under certain conditions for qualified business acquisitions (適格事業譲渡). This can create a tax advantage for buyers over time.
Sellers push hard for share transfer because of the capital gains rate advantage. Buyers sometimes push for business transfer to obtain asset step-up and liability isolation. Deal structure often reflects who has more negotiating leverage.
Do Licenses and Permits Transfer Automatically?#
Licenses and Permits
All licenses and permits held by the target company continue through a share transfer without re-application (because the target company itself has not changed). The buyer's identity as new shareholder does not revoke existing permits.
However, some licenses contain change-of-control provisions requiring notification or approval from the licensing authority when the ultimate owner changes. Examples include:
- Financial services licenses (Financial Instruments and Exchange Act (金融商品取引業) licenses)
- Healthcare and pharmaceutical licenses
- Certain customs registrations
- Broadcasting and telecom licenses
Licenses generally do not transfer automatically in a business transfer. The buyer must re-apply with the relevant authority. If the license is critical to the business and re-application is uncertain or slow, this is a material deal risk.
FEFTA Screening
Both share transfer and business transfer can trigger Japan's Foreign Exchange and Foreign Trade Act (FEFTA (外為法)) pre-notification requirement when the acquirer is foreign and the target operates in a designated industry (指定業種).
- Acquiring shares of a Japanese company in a designated industry triggers Article 26 pre-notification if the foreign buyer's post-acquisition holding reaches or exceeds the applicable threshold.
- Acquiring a business that constitutes a substantial operation in a designated sector may also fall within FEFTA's inward investment (対内直接投資) framework, depending on structure and sector.
FEFTA screening involves a statutory waiting period (standard: 30 days, extendable) during which the Ministry of Finance and relevant sectoral ministries review the transaction. Transactions that pose national security concerns can be modified or, in rare cases, prohibited.
FEFTA pre-notification is a deal-timeline risk that must be assessed before signing. Closing before the waiting period expires can result in penalties. Every cross-border Japan acquisition should include a FEFTA pre-screening as part of early-stage structuring work.
How Does Due Diligence Scope Change Between the Two Structures?#
The scope of due diligence should reflect the liability exposure of the chosen structure. The comprehensive review a share deal requires is the same discipline covered in our Japan M&A due diligence checklist: tax history, litigation, employment, IP ownership, and every material contract.
A share-transfer buyer inherits all liabilities, so due diligence must cover the entire company history: tax assessments, employment disputes, product liability, environmental exposure, IP ownership, and all material contracts. The review has to be that wide because the buyer has no way to leave unwanted liabilities behind after closing.
Business-transfer due diligence can be more targeted, focused on the assets and liabilities being acquired. However, the buyer still needs to verify that:
- Key contracts are assignable and counterparties will consent
- Employees will transfer
- The identified IP is actually owned by the seller (not licensed from a third party)
- No regulatory restriction prevents the asset transfer
Representations and warranties play a different role in each structure. In a share deal, the seller gives broad warranty coverage about the company. In a business deal, the seller gives warranties about the transferred assets and assumed liabilities specifically.
Which Structure Should You Choose? A Decision Framework#
Work through these questions in order. For a first-time foreign buyer, our complete guide to acquiring a Japanese company places this decision in the broader deal timeline.
1. Is the target a standalone entity (KK or GK) whose shares are freely transferable? If yes, share transfer is the natural starting point. Proceed to question 2. If no (embedded business unit, no standalone entity), business transfer is likely the only option.
2. Are there material undisclosed liabilities the buyer wants to exclude? Share transfer remains viable if liabilities can be quantified and addressed in the purchase price or through representations and indemnities. If liabilities are unquantifiable or the buyer cannot accept them even with indemnities, business transfer for liability isolation becomes more attractive.
3. Does the target hold licenses that do not transfer in a business transfer? If yes, share transfer preserves those licenses automatically. If re-application is straightforward or the licenses are not material, business transfer remains an option.
4. What is the seller's preferred tax treatment? Individual owner-operators strongly prefer share transfer. If the seller will not accept business transfer, structure the deal accordingly and price in the liability risk through due diligence and representations.
5. Does the deal trigger FEFTA pre-notification? Both structures may trigger FEFTA. Run the FEFTA pre-screening early regardless of structure.
Structuring this decision correctly, and running the FEFTA pre-screening alongside it, is the kind of early-stage work covered under Aplash's M&A advisory service.
Frequently Asked Questions#
Can a foreign buyer choose business transfer just to avoid FEFTA screening?
No, business transfer does not avoid FEFTA review by itself. Acquiring a business that constitutes a substantial operation in a designated sector can still fall within FEFTA's inward investment framework depending on the structure and sector, so the screening question has to be assessed on the facts of the deal, not assumed away by the choice of structure.
Does a share transfer always mean the buyer inherits every liability with no protection?
The buyer inherits every liability by default, but this is negotiated, not fixed. Purchase price adjustments, seller representations and warranties, indemnity provisions, and escrow holdbacks are the standard tools buyers use to shift disclosed and undisclosed liability risk back toward the seller without changing the deal structure itself.
Is business transfer ever faster than share transfer in Japan?
Rarely, because business transfer generally requires individually assigning contracts with counterparty consent and individually re-hiring or transferring employees under new contracts, both of which add time compared to a share transfer, where the target company's existing contracts and employment relationships carry over automatically. Business transfer is chosen for liability isolation or tax reasons.
This article is informational only and does not constitute legal, tax, or regulatory advice. Consult a qualified advisor before acting on the content. Last updated: September 2026.