Introduction

Bank subsidiaries established for investment purposes (“Specified Subsidiaries” (tokutei kogaisha), also known as “investment-specialized subsidiaries”) commonly provide financing to companies undergoing business succession by establishing business succession funds and investing in such companies. On June 15, 2026, the Ordinance for Enforcement of the Banking Act was amended and came into effect (the “Amendment”), relaxing the requirements applicable to financing provided by Specified Subsidiaries.

This article first provides an overview of the requirements applicable to financing provided by Specified Subsidiaries to companies undergoing business succession, and then explains the changes introduced by the Amendment. For purposes of this article, the Banking Act is referred to as the “Act” and the Ordinance for Enforcement of the Banking Act as the “Ordinance.”

Overview of the Restrictions on Bank Subsidiaries and Voting Rights Holdings

A bank may not have as a subsidiary any company other than those falling within the categories specified in the items of Article 16-2, paragraph (1) of the Banking Act (collectively, “Eligible Subsidiary Companies”) (main clause of Article 16-2, paragraph (1) of the Banking Act). The same restriction applies to bank holding companies (Article 52-23, paragraph (1) of the Banking Act).

A bank or any of its subsidiaries may not, in aggregate, acquire or hold voting rights in a domestic company (other than an Eligible Subsidiary Company) in excess of the “Threshold Voting Rights” (5%; 15% in the case of a bank holding company) (Article 16-4, paragraph (1) of the Banking Act; Article 52-24, paragraph (1) in the case of a bank holding company). Accordingly, a bank or bank holding company may make an investment that would result in its holding voting rights more than the Threshold Voting Rights only in an Eligible Subsidiary Company.

An investment structured without voting rights does not, as a matter of statutory interpretation, fall within the scope of the restrictions on bank subsidiaries or voting rights holdings.[2] Nevertheless, as discussed below, investments by an investment-specialized subsidiary require separate consideration in light of the restrictions on the scope of business applicable to such subsidiaries.

[2] Under the Banking Act, a “subsidiary” is defined as “another company in which a company holds more than 50% of the voting rights of all shareholders, etc.” (Article 2, paragraph (8)). Unlike the Companies Act and other relevant legislation, the Banking Act does not determine subsidiary status based on de facto control. Nevertheless, the Comprehensive Guidelines for Supervision of Major Banks, etc. impose substantially similar restrictions on the scope of business of “Subsidiary Entities” (kohoujin-tou) and “Affiliated Entities” (kanrenhoujin-tou), as defined in Article 4-2, paragraphs (2) and (3) of the Order for Enforcement of the Banking Act (Section V-3-3). Accordingly, these restrictions should also be considered. Whether an entity falls within either category is determined based on de facto control (Article 4-2, paragraphs (2) and (3) of the Order for Enforcement of the Banking Act).

Requirements for Investments in Business Succession Companies

Under the restrictions on bank subsidiaries and voting rights holdings described above, a bank may, through an investment-specialized subsidiary, make a company that is undergoing business succession a subsidiary or hold voting rights in such a company that are more than the Threshold Voting Rights for a period of up to 10 years.

(1) What Constitutes a Business Succession Company

(a) Definition of a Business Succession Company
A bank may have as a subsidiary a company “that requires support for the succession of its business due to the death, advanced age or other circumstances affecting its representative and that is receiving support pursuant to a plan for the succession of that business” (Article 16-2, paragraph (1), item (13) of the Banking Act; Article 17-2, paragraph (6), item (10) of the Ordinance; for bank holding companies, Article 52-23, paragraph (1), item (12) of the Banking Act and Article 34-16, paragraph (4), item (1) of the Ordinance). Such a company is generally referred to as a “Business Succession Company.”

Following the Amendment, a Business Succession Company may include a listed company (parenthetical provision in Article 17-2, paragraph (6) of the Ordinance; for bank holding companies, the corresponding parenthetical provision in Article 34-16, paragraph (4) of the Ordinance). For a company that does not satisfy the requirements under Article 17-2, paragraph (7) of the Ordinance, however, Article 16-2, paragraph (1), item (13) of the Banking Act requires that the aggregate voting rights held by the bank and its subsidiaries other than an investment-specialized subsidiary not exceed the Threshold Voting Rights (for bank holding companies, Article 52-23, paragraph (1), item (12) of the Banking Act and Article 34-16, paragraph (5) of the Ordinance). Because a Business Succession Company does not fall within the category specified in Article 17-2, paragraph (7) of the Ordinance (parenthetical provision in Article 17-2, paragraph (7); for bank holding companies, the corresponding parenthetical provision in Article 34-16, paragraph (5)), a bank or bank holding company cannot itself make an investment in a Business Succession Company that would cause its voting rights to exceed the Threshold Voting Rights. Any such investment must therefore be made through an investment-specialized subsidiary.

(b) Meaning of “Business Succession”
“A company that requires support for the succession of its business due to the death, advanced age or other circumstances affecting its representative”
“Death” and “advanced age” are examples of circumstances that may give rise to business succession. The phrase “that business” refers to the business operated by the representative.[3] Accordingly, the requirement is not necessarily defeated simply because the representative is relatively young. Rather, the requirement may be satisfied where support is necessary to facilitate the succession of the business conducted by the representative.

“A company that is receiving support pursuant to a plan for the succession of that business”
The regulations do not require the party providing the support to have a specific role in preparing or implementing the relevant “plan for the succession of that business.” Nevertheless, given the need to assess the feasibility of the plan and the purpose of investing in a company that requires support, it is preferable for a relevant financial institution or other appropriate party to have some degree of involvement in the plan.[4]

[3] “Publication of the Results of the Public Comment Process on the Draft Cabinet Office Ordinance Partially Amending the Ordinance for Enforcement of the Banking Act and Other Regulations,” October 15, 2019, Appendix 1, Nos. 12, 13 and 14.

[4] Ibid., No. 15.

(2) What Constitutes a Specified Subsidiary

A “Specified Subsidiary” is a company that exclusively engages in dependent businesses and financial-related businesses, and which exclusively engages in the following activities and activities incidental thereto (Article 16-2, paragraph (1), item (12) of the Banking Act; Article 17-2, paragraph (14) of the Ordinance; for bank holding companies, Article 52-23, paragraph (1), item (11) of the Banking Act and Article 34-16, paragraph (12) of the Ordinance). Although the term “exclusively” is not without ambiguity, it is generally understood in this context to mean that the company may not engage in any business other than the activities listed below and activities incidental thereto.[5] A Specified Subsidiary may, however, engage in more than one of the listed activities. In addition, the Amendment added item (iii), thereby permitting Specified Subsidiaries to engage in M&A intermediary services.

(i) the business specified in Article 17-3, paragraph (2), item (12) of the Ordinance; (ii) providing business management advice to other business operators, introducing business operators or customers relevant to the business of such other business operators, and providing other necessary information and advice, limited to activities primarily relating to domestic companies and other organizations that have received, or are expected to receive, funding through the business described in item (i); and (iii) the business specified in Article 17-3, paragraph (2), item (14)-3 of the Ordinance.

With respect to Article 17-3, paragraph (2), item (12) of the Ordinance, before the Amendment, it was generally understood that a Specified Subsidiary could serve as a general partner (“GP”) and manage an investment fund.[6] However, because a Specified Subsidiary was permitted to engage only in the business of providing funds necessary for the business of another stock company, and the permissible forms of such funding were limited, the scope of funding activities available to a Specified Subsidiary was restricted not only by the restrictions on bank subsidiaries and voting rights holdings but also by the restrictions on the scope of business applicable to Specified Subsidiaries. In practice, this meant that a Specified Subsidiary could provide funding to stock companies only through a limited range of structures.

Following the Amendment, a Specified Subsidiary may now engage in the “business of providing funds necessary for the business of other domestic companies and other organizations,” thereby broadening the types of entities that may receive funding as well as the forms in which such funding may be provided. Accordingly, a Specified Subsidiary may now provide funding through investments in limited liability companies (godo kaisha), investments through silent partnership interests (tokumei kumiai interests), and the acquisition of beneficial interests in trusts, among other structures.

 According to the Financial Services Agency’s responses to public comments, however, “companies and other organizations” refers only to domestic entities. As a result, investments in foreign stock companies, foreign LLCs and other foreign entities remain unable to be made through a Specified Subsidiary.[7] The public comment responses suggest that, following the amendment to item (12), a Specified Subsidiary may enter into partnership agreements and similar arrangements under foreign law, but the entity receiving the funding must nevertheless be a domestic entity.

(Following the Amendment)	(Before the Amendment)
(xii) The business of providing funds necessary for the business of other domestic companies and other organizations.	(xii) The business of providing funds necessary for the business of other stock companies.
(a) Making loans to the relevant company or organization.	(a) Making loans to the relevant company.
(b) Acquiring bonds issued by the relevant company or organization (excluding short-term corporate bonds specified in Article 10, paragraph (3), item (i) of the Banking Act).	(b) Acquiring bonds issued by the relevant company (excluding short-term corporate bonds specified in Article 10, paragraph (3), item (i) of the Banking Act).
(c) Acquiring stock acquisition rights issued by the relevant company or organization.	(c) Acquiring stock acquisition rights issued by the relevant company.
(d) Acquiring shares or other equity interests in the relevant company or organization for the purpose of receiving dividends or realizing gains from the sale of such shares or other equity interests.	(d) Acquiring shares issued by the relevant company for the purpose of receiving dividends or realizing gains from the sale of such shares.
(e) Acquiring beneficial interests in trusts issued by the relevant company or organization.	[Newly added by the Amendment]
(f) Entering into any of the following agreements for the purpose of carrying out any of the activities set out in items (a) through (e): a partnership agreement under Article 667, paragraph (1) of the Civil Code; a silent partnership agreement under Article 535 of the Commercial Code; an investment limited partnership agreement under Article 3, paragraph (1) of the Limited Partnership Act for Investment; a limited liability partnership agreement under Article 3, paragraph (1) of the Limited Liability Partnership Act; or an agreement under foreign law that is equivalent to any of the foregoing.	(e) Entering into a partnership agreement under Article 667, paragraph (1) of the Civil Code or an investment limited partnership agreement under Article 3, paragraph (1) of the Limited Partnership Act for Investment for the purpose of carrying out any of the activities set out in items (a) through (d).

As a rule, a Business Succession Company qualifies as an Eligible Subsidiary Company only for 10 years from the date on which the Specified Subsidiary acquires voting rights in the company (Article 17-2, paragraph (12) of the Ordinance; for bank holding companies, Article 34-16, paragraph (10) of the Ordinance).

[5] “Publication of the Results of the Public Comment Process on the Draft Cabinet and Cabinet Office Ordinances and Other Regulations in Connection with the 2008 Amendments to the Financial Instruments and Exchange Act and Other Legislation,” December 2, 2008, Appendix 1, p. 67, No. 19.

[6] “Publication of the Results of the Public Comment Process on the Draft Cabinet and Cabinet Office Ordinances and Other Regulations in Connection with the 2015 Amendments to the Financial Instruments and Exchange Act and Other Legislation,” February 3, 2016, Appendix 1, No. 527.

[7] “Promulgation of the Cabinet Office Ordinance Partially Amending the Ordinance for Enforcement of the Banking Act and Other Regulations, and Publication of the Results of the Public Comment Process,” June 12, 2026, Appendix 1, Nos. 12 and 18.

Conclusion

As discussed above, the Amendment enables Specified Subsidiaries of banks to provide funding not only to listed Business Succession Companies but also to domestic entities other than stock companies. The Amendment is expected to further expand the role of banking groups in supporting business succession.

We hope that this article will assist banking groups, as well as those working with banking groups, in considering ways to support companies undergoing business succession.