When a Restructuring Requires More Than a Simple Asset Sale
Foreign companies operating in Japan through a kabushiki kaisha (KK (株式会社)) or godo kaisha (GK (合同会社)) occasionally reach a point where the structure needs to change: a business line needs to be separated, a subsidiary needs to be created around a specific function, or a pre-acquisition carve-out requires assets and contracts to move cleanly from one entity to another.
The Japan corporate split (kaisha bunkatsu (会社分割)) is the legal mechanism for this. It allows a company to transfer part or all of its business - including assets, liabilities, contracts, employees, and regulatory relationships - to another entity, either an existing entity or a newly incorporated one, in a single statutory transaction.
Understanding how it works, when to use it, and the protections required for creditors and employees is essential before a foreign company initiates a Japan-side restructuring.
Two Types of Corporate Split
The Companies Act (会社法) provides two corporate split structures:
Kyushu Bunkatsu - Absorption-Type Split (吸収分割)
In an absorption-type split, the company performing the split (the "splitting company" or bunkatsu kaisha (分割会社)) transfers part of its business to an existing company (the "succeeding company" or shokei kaisha (承継会社)).
The succeeding company already exists before the split. The splitting company's business unit, including its associated assets, liabilities, contracts, and employees, is absorbed into the existing succeeding company.
Common use cases:
(a) Consolidating two Japan operating entities into one: the splitting company transfers its entire business to the surviving entity, then is dissolved.
(b) Transferring a specific business line (e.g., manufacturing, IP licensing, distribution) from an operating company to an existing holding company or sister entity within the same group.
(c) Pre-acquisition carve-out: isolating a specific business segment into an existing NewCo that the acquirer will then purchase.
Shinsetsu Bunkatsu - Incorporation-Type Split (新設分割)
In an incorporation-type split, the splitting company transfers part of its business to a newly incorporated company (the "newly incorporated company" or shinsetsu kaisha (新設会社)) that is created as part of the split transaction itself.
The new company does not exist before the split. It is incorporated and simultaneously receives the transferred business.
Common use cases:
(a) Creating a new subsidiary to hold a specific business function (R&D, manufacturing, IP).
(b) Separating a profitable business from a troubled one before sale or liquidation of the latter.
(c) Preparing a business unit for sale to a third party: the business is placed into a newly incorporated clean entity, which the acquirer then purchases by share acquisition.
What Transfers in a Corporate Split
The defining feature of the corporate split is that it operates as a statutory universal succession (hokatsu shokei (包括承継)) for the items specified in the split plan. This is different from an asset sale.
In an asset sale (jigyo joto (事業譲渡)), each asset, contract, and employee must be individually transferred, consented to, or novated. Counterparty consent is required for each contract. Employee consent is required individually.
In a corporate split, the items specified in the split plan (bunkatsu keikakusho (分割計画書) for incorporation-type; bunkatsu keiyakusho (分割契約書) for absorption-type) transfer automatically by operation of law, without individual counterparty consent for most matters.
What transfers:
(a) Assets (fixed assets, inventory, cash and receivables, intellectual property, permits to the extent transferable by law)
(b) Liabilities (trade payables, loans, contingent liabilities specified in the plan)
(c) Contracts (employment contracts, customer contracts, supplier agreements - the key question is whether those contracts contain anti-assignment or change-of-entity clauses)
(d) Employees assigned to the business (subject to labor law requirements below)
What does not automatically transfer:
(a) Licences and permits that require individual ministry approval for transfer - these must be applied for separately even though the split is legally a statutory succession (see Regulatory Impact section below)
(b) Real property interests that require separate registry filing
(c) Any item not specified in the split plan
The Split Plan (分割計画書 / 分割契約書)
The split plan or split contract is the central document of the corporate split. It must include:
(a) Specification of the transferring business: A precise description of the business segment being split - assets, liabilities, contracts, employees, and intellectual property - is required. Vague or incomplete specifications cause disputes post-split about what actually transferred.
(b) Consideration: What the splitting company receives in exchange for the transfer. In a split to a group subsidiary, this is typically shares in the succeeding company (or new company). In a split to an unrelated acquirer, it may be cash consideration.
(c) Allocation of transferred liabilities: Which specific liabilities transfer to the succeeding company, and which remain with the splitting company. This allocation is binding between the two companies but does not release the splitting company from creditor claims in all cases (see Creditor Protection below).
(d) Employment arrangements: How employees assigned to the transferred business will be treated.
(e) Effective date: The date the split takes effect legally.
Shareholder Approval Requirements
KK
For a corporate split involving a KK, shareholder approval by special resolution (tokubetsu ketsugu (特別決議)) is required in most cases. A special resolution requires:
(a) A quorate shareholders' meeting (default quorum: majority of voting rights), and
(b) At least two-thirds of votes cast at that meeting.
Simplified procedure (略式 / ryakushiki / kani (簡易)): The Companies Act (会社法) provides streamlined procedures that may eliminate or simplify the shareholder vote in certain circumstances:
Simplified split (kani bunkatsu (簡易分割)): If the value of the assets being transferred is less than 20% of the total assets of the splitting company, shareholder approval of the splitting company is not required. This is frequently used for minor business line segregations.
Simplified succession (kani shokei (簡易承継)): If the value of the transferred business is less than 20% of the total assets of the succeeding company, shareholder approval of the succeeding company is not required.
Short-form split (ryakushiki bunkatsu (略式分割)): Where the splitting company and the succeeding company are in a parent-subsidiary relationship (parent holds 90%+ of the subsidiary), the subsidiary can proceed without shareholder approval.
GK
For a GK, a corporate split requires amendment of the 定款 by unanimous member consent (unless the 定款 itself provides otherwise) and resolution approving the split plan.
Creditor Protection (債権者保護手続)
This is the most operationally significant procedural requirement in a Japan corporate split. Creditors whose claims are at risk from the split must be given the opportunity to object.
The procedure:
(a) The company must make a public notice (官報 (kanpo) publication) of the split at least two weeks before the effective date.
(b) In addition, the company must individually notify known creditors who are likely to be adversely affected by the split (i.e., creditors whose claims are being transferred to a succeeding company with materially different credit quality from the splitting company).
(c) Creditors have a defined period (at least one month from the individual notice or the public notice, whichever is later) to file an objection.
(d) If a creditor objects, the company must satisfy the claim or provide adequate security or place assets in trust before the split takes effect.
Practical implication for foreign companies: If the splitting company has Japanese bank loans, lease obligations, or other significant creditor relationships, those creditors must be notified and may object. Banks in particular scrutinize corporate splits where a core business is being transferred away from the entity they lent to. Proactive bank coordination before initiating the split avoids surprises.
The "残存債権者" (remaining creditor) protection: Even after a split, if a liability that should have transferred to the succeeding company was not included in the split plan (or the creditor was not notified), the splitting company retains residual liability. The creditor can claim against both the splitting company and the succeeding company in certain circumstances. This makes the specificity of the split plan critically important.
Employee Treatment (労働者保護)
Employees are not assets. Their transfer in a corporate split is subject to labor law requirements that differ from asset-sale or business-transfer transactions.
Under the Companies Act (会社法) and the Act on Succession to Labor Contracts upon Company Split (会社分割に伴う労働契約の承継等に関する法律):
(a) Employees assigned mainly to the transferred business: Their employment contracts transfer automatically to the succeeding company by operation of law, unless the employee objects within a defined period.
(b) Employees not assigned mainly to the transferred business but whose contracts are specified for transfer in the split plan: They may object to the transfer and remain with the splitting company.
(c) Notification and consultation requirement: Prior to the split, the company must consult with labor unions or, if no union, with the employees' representative (労働者代表 (rodoshadaihyo)) about the split and its implications for employees. A summary of the split plan must be provided to affected employees.
(d) Objection deadline: Employees have a defined period to object after receiving notice of the split.
Key practical point: Unlike M&A share transactions (where the employer entity doesn't change), a corporate split where employees move to a new entity changes their employer of record. This triggers re-documentation of employment terms under the new entity and may affect employee benefits, commuter allowances, and pension enrollment.
Regulatory Impact: Licences Do Not Transfer Automatically
Despite the statutory universal succession character of a corporate split, many regulated licences and permits in Japan are personal to the licensed entity and do not transfer by operation of law to the succeeding company.
Licences that typically require fresh application or re-notification:
(a) Product approval registrations under the Pharmaceutical and Medical Device Act (PMD Act)
(b) PSE notifying supplier registrations under the Electrical Appliance and Material Safety Act (電安法)
(c) Customs importer registration
(d) 通関業者 licence (customs clearance business licence)
(e) Real estate business licence
(f) Financial instruments business registration
(g) Construction business licence
Licences that may transfer with notification:
(a) Some import/export licences under the Foreign Exchange and Foreign Trade Act (外為法) - check with the relevant ministry before assuming transfer
Action required: Before structuring a corporate split, build a complete inventory of all licences, permits, and registrations held by the splitting company. For each one, confirm whether it transfers by law, requires re-application, or requires notification only. This determines whether the split effective date must follow or coincide with the completion of the re-licensing process.
Registry Filings
A corporate split must be registered at the Legal Affairs Bureau (法務局) for both the splitting company and the succeeding company (or the newly incorporated company in an incorporation-type split) within two weeks of the effective date.
For an incorporation-type split, the new company is incorporated simultaneously with the split registration. There is no separate prior incorporation step.
Registration tax applies: ¥30,000 for changes at the splitting company; ¥30,000 minimum for the succeeding company (or incorporation fee for the new company).
FEFTA Considerations
A corporate split involving a foreign investor may constitute a foreign direct investment triggering prior notification obligations under the Foreign Exchange and Foreign Trade Act (外為法) if:
(a) The succeeding company operates in a FEFTA prior-notification designated industry, and
(b) The split results in a foreign investor acquiring or increasing an interest in that designated-industry entity above a FEFTA threshold.
This is a Director review matter. Corporate splits in FEFTA-sensitive sectors (telecom, broadcasting, defense-adjacent, nuclear, energy, aviation, maritime transport, cybersecurity, etc.) must be assessed for FEFTA notification obligations before proceeding. A Japanese restructuring that a foreign parent treats as internal group reorganization may nonetheless trigger FEFTA prior notification. See Japan FEFTA M&A Guide for the screening framework.
Corporate Split vs. Business Transfer: Choosing the Right Structure
| Factor | Corporate Split (会社分割) | Business Transfer (事業譲渡) |
|---|---|---|
| Liability transfer | Specified liabilities transfer automatically | Buyer selects liabilities; others stay with seller |
| Contract transfer | Statutory succession for specified contracts | Individual novation or assignment required |
| Employee transfer | Automatic (with objection right) | Requires individual employee consent |
| Creditor protection | Mandatory creditor protection procedure | No statutory procedure (commercial negotiation) |
| Licences | Re-application or notification required | Re-application or notification required |
| Timeline | 2 to 4 months minimum | Often faster for simple transactions |
For many restructurings, the corporate split is superior to a business transfer because it avoids the need to novate individual contracts. For acquisitions where the buyer wants to select specific assets and exclude contingent liabilities, a business transfer (or a combination of split then share acquisition) may be preferred.
Typical Timeline
(a) Board and shareholder resolution: 2 to 4 weeks (depending on notice requirements and whether simplified procedures apply)
(b) Creditor protection public notice: Minimum one month from publication date
(c) Employee consultation and notification: Concurrent with creditor protection; typically one month
(d) Registry filings: 2 weeks after effective date
(e) Total minimum elapsed time: Typically 2 to 4 months from initiation to effective date for a straightforward intra-group split
(f) Licence re-applications: Variable; can extend the timeline materially if key operating licences require fresh applications with longer government review periods
How Aplash Can Help
Aplash advises foreign companies on Japan-side restructuring strategy, including corporate split structuring, FEFTA screening for the restructured entity, regulatory licence transfer planning, and coordination with judicial scriveners (司法書士) and tax advisors for the registry and tax dimensions of the split.
See also: Japan Holding Company Structure, Japan GK to KK Conversion, and Japan Company Dissolution.
This article is for informational purposes. It does not constitute legal advice. Corporate splits require review by qualified Japan-licensed counsel including a 司法書士 for registry filings and a 弁護士 for complex liability and employment matters.