Japan Business Law: Issuing Bonds in Japan

For a company to raise funds, it can issue stock, borrow from a financial institution, or issue bonds. Compared to issuing stocks, the process for issuing bonds is simple. Bonds can be issued without collateral (depending on the type), which makes them a common capital procurement method for small-to-medium-sized enterprises. The following is an introduction of benefits and precautions to consider when issuing bonds.

Issuing Bonds: Basic Information and Benefits

Issuing bonds allows the company to collect capital from investors, who are then paid interest at set intervals, with the entire amount paid off by the full term. Unlike stocks, the price does not fluctuate.
Bonds fall into three categories: public issue bonds (investors are recruited through public offering), professional privately-placed bonds (qualified institutional investors recognized by law (from a bank or stock brokerage firm) are issued bonds), and limited privately-placed bonds (a small number of people, such as traders, relatives, and other individuals affiliated with the company are issued bonds). The terms for issuing limited privately-placed bonds are as follows.

1. Must be limited to under 50 people.
2. Must not include qualified institutional investors.
3. The total bond value cannot be divided more than 50 times.

Many small-to-medium-sized enterprises issue limited privately-placed bonds since the procedure is simple, requires no collateral, and parameters such as maturity period, interest, and the issue amount can be flexibly set.
Furthermore, bonds are generally subject to lower interest rates than borrowing from the bank, and there is no risk of interference in business operations, as can be the case with stocks.

Establishing Trust with Important Investors through Limited Privately-Placed Bonds

When issuing bonds, it is necessary to explicitly state the goal and application for the capital being procured, and create business planning documents and repayment schedules spanning the period of the bond. Raising capital without a plan will not only result in inefficient use of capital, but the company will also lose trust among purchasing investors. Furthermore, without a clear repayment plan, the company may not have the capital to repay the principal when the bond matures. As a result, investors will lose all trust in the company, and it may be difficult to issue bonds in the future.
With limited privately-placed bonds in particular, it is crucial that the company build a trustworthy relationship with its investors. When issuing bonds, make sure to provide investors with clear information on the total amount for subscription, interest rates, payment methods, and the repayment period and reimbursement method. In addition, take assertive action in providing company information, including business plans and financial statements. It is crucial that the company build trust by providing accurate information on company conditions. This includes holding information sessions when issuing the bonds and providing briefings when paying interest and when the bond matures.

Bonds are clearly an effective way for small-to-medium-sized enterprises to raise capital. Consult with an expert to take full advantage of them.