Q4 (Capital Structure)

We have heard that there are no restrictions on the amount of the company’s capital. If we invest a total amount of 1,000,000 JPY, how many shares should we have and what should be the price per share?

Under the Companies Act, there are no restrictions on the price per share issued at the time of incorporation, so you are free to choose the price. As for the number of shares, so long as it’s within the number of authorized shares in the articles of incorporation, there is no problem.

However, under the old Commercial Code, the number of shares outstanding could not be less than 1/4 of the authorized number. But under the Companies Act this restriction is limited to “public companies” (as defined in the Companies Act, which is not necessarily the same as a publicly listed company), so private companies are not so restricted.

Of course, if the price per share is too high at the outset, it could become an obstacle to future financings, in which case a stock split would be required to reduce the price per share. So make sure to choose an appropriate price per share at the time of incorporation. If you don’t have a specific desire, you could issue 100 shares at 10,000 JPY per share, or 1,000 shares at 1,000 JPY per share.

(Posted: January 27, 2012)