Examination of Employee Stock Ownership Plan

In Japan, employee stock purchase plans have become widespread in not only listed companies but closely held companies as well. Several legal issues exist concerning these plans, such as prohibition of “payoffs to specific shareholders” and the principle of shareholder equality. To resolve such problems, the government has supported the plan by rulemaking and the courts make judicial decisions on the issues. Recently, the managements of several companies have introduced so called ESOP, to increase participation in an employee stock purchasing plan or to launch a retirement benefits plan. ESOP in the United States are tax-favored devices designed to provide retirement benefits for a corporation’s employees through collective stock ownership of their employer. Japanese ESOPs, based on American ESOP, have are complex aspects ; most are part of an employee stock purchasing plan while others include an employee benefit plan. However, because of the lack of legislative assistance or of court decisions on ESOPs, some legal problems need further discussion in Japanese company law and securities regulations. This paper focuses on the legal issues surrounding possible conflicts that ESOPs may have with the present Companies Act and Financial Instruments and Exchange Actdepartmental bulletin pape