Family Business Succession Planning in Japan

view of building exterior 327483 - Family Business Succession Planning in Japan

It can be challenging for business owners to find the right person in their family to take over their business.  

And, if the business accounts for a large portion of your estate, the split of your estate (and your company) could complicate the ownership structure of the company.

According to Japanese estate laws, 50 percent of the default split should go to heirs other than the primary heir. For example, if you have more than one child, your spouse would receive 50 percent of your estate, and each child would qualify to receive an equal portion of the remaining estate and shares in your company.

You can create your will with different proportions, but your spouse has the legal right to take a portion of each child’s share.

Dividing the shares in this manner would complicate the new ownership structure and could make running the company very difficult.

To solve this problem, the Japanese government recently introduced a new “Smooth (Business) Succession Law 承継円滑化法.

Under this law, you can choose two major benefits. (1) You can exclude the valuation of the company from the computation of the minimum requirement. For example, if your estate in total is 300 million yen and the company valuation is 200 million yen, the minimum guaranteed estate will be based on 100 million.

(2) The second option allows you to fix the valuation of the company at the current valuation. For example, let’s say the valuation of your company is 50 million yen. By the time you pass away, your company valuation could be as high as 500 million yen more due to your heir’s hard work. Assuming that your total estate, including the company, is now valued at 600 million yen. The minimum guaranteed estate would be based on 100 million yen (600mm – 500mm). This arrangement would not demotivate an heir from taking over a business and trying to grow it.