Legal Support for IPO Preparation and Internal Controls
We support the legal issues that arise in preparing for a listing: identifying and remedying problems, reflecting what has been put right in your internal rules and procedures, confirming how those work in practice, and organizing the explanatory materials for the listing examination.
Unpaid overtime, related-party transactions, defects in stock option grants, ownership of intellectual property. Identifying a problem, settling it, putting in place arrangements that prevent recurrence, actually operating those arrangements, and being able to explain the history are each treated as separate matters.
We support IPO preparation for both Japanese and US markets. The documents to be checked and the procedures differ according to the market.
We apply the same framework to establishing systems where no IPO is planned (preparation for a sale by M&A, or for starting to trade with large companies) and to operations after listing.
We Map, Issue by Issue, How Far Each Has Been Dealt With
What needs to be done differs according to whether a problem has merely been identified, has been remedied, or has been built into the company’s systems and is operating. For each legal issue, we confirm the facts and the legal points, and map what has been dealt with and what remains.
Not every issue proceeds in the same order. Remediation and work on internal rules and procedures may run in parallel, and we may become involved at the stage of confirming how systems already in place are operating. We divide roles with your staff and the other professionals involved and take the necessary steps.
- Identify and diagnose — establish what the problem isWe review documents and how the business actually operates, and identify the legal problems, the points needing further confirmation and the matters to be addressed first
- Remedy — deal with past and present problemsWe consider the legal effect of the problem and how to address it, and support the remediation needed: settling unpaid amounts, revising terms of dealing, sorting out ownership of rights and so on
- Institutionalise — build the fix into systems that prevent recurrenceBased on the remedy, we review regulations, contracts, approval procedures and workflows, and put in place arrangements the company can operate on a continuing basis
- Operate and evidence — confirm actual operation and recordsWe review how the company operates the arrangements and the records it keeps, and consider whether practice diverges from the procedures set and whether further changes are needed
- Disclose and explain — set out the history and current position in documentsWe organize the history of the problem, the action taken, the current position and any remaining issues, and support the legal parts of the application and disclosure documents and the responses to questions
We check the legal content of the documents required for the market applied to. For the Japanese markets these include the “Securities Report for Initial Listing Application (Part II)” for the Prime and Standard Markets and the explanatory documents required of applicants to the Growth Market. For a listing in the United States, the documents to be checked and the procedures differ. We handle the matters of Japanese law — the organizational and internal control arrangements, contracts and internal regulations, and the legal content of the explanatory materials — and work with counsel qualified in the relevant jurisdiction on matters of that jurisdiction’s law. The division of work is confirmed at the outset.
Example of a Status Map
Advertising review system Revision of the regulations and approval procedures completed. Action on past advertisements, and confirmation of review records under the new procedure, ongoing. Next: confirm the status of action on the advertisements concerned and the actual review records.
| Issue | Doubt as to whether individuals engaged under service contracts are in substance employees |
|---|---|
| Facts confirmed | The contract terms; the method of calculating remuneration |
| Not yet confirmed | Whether instructions are in fact given; whether the place and hours of work are specified; whether work for others is permitted; who provides the equipment |
| Current assessment | Provisional. The conclusion depends on the points above |
| How the assessment is made | The work actually performed, the degree of direction and constraint, and the character of the remuneration are each confirmed and then assessed together. No single factor decides the conclusion |
| Action according to the assessment | Where the assessment points towards employee status: reclassify the contracts and switch to employment; decide how to deal with the past treatment. Where it does not: align the contract terms with actual practice and amend provisions that could mislead |
| Responsibility | This firm (legal assessment; contract revision); HR (confirming practice; implementing the switch); labor and social security attorney (social insurance; aggregation of working hours) |
| Done / remaining | — / confirming practice, deciding the approach, implementing the switch, confirming operation after the switch |
| Documents evidencing completion | Records of the fact-finding, the new contracts, the internal approval for the switch, and documents showing that the new arrangements continue to operate (attendance records; records of internal communications on direction and control) |
What We Use to Confirm Remediation and Operation
| Issue | Examples of what is confirmed |
|---|---|
| Unpaid overtime | In addition to the scope and settlement of past liabilities, we confirm that current attendance recording, wage calculation and payment records are consistent |
| Related-party transactions | For transactions to be discontinued, we confirm that they have in fact and reliably ended. For those continuing, we set out the necessity, the terms, the approval and the method of ongoing review |
| Stock options | We confirm that the issue and grant terms, the procedures required and the management of the rights are consistent, and that a method of managing them going forward is in place |
| Ownership of intellectual property | We confirm separately the action taken on existing rights, and the contracts and practices that secure rights properly in new development and outsourcing |
| Defects in past capital increases and resolutions | We confirm the legal effect of the defect and the available responses, distinguishing action on past problems from the review of future procedural management |
The time needed for remediation and for confirming operation The time needed depends on the nature of the problem, the extent of past action, the work the company itself carries out and the operating records to be confirmed. We map the facts and the remaining work, and consider the timetable with the company and the other professionals involved. The passing of a set number of months does not in itself mean that remediation, or the action required for the IPO, is complete.
Relevant Experience, and an Example of Our Support
Organizational and operational arrangements for an IPO
For a corporate group preparing for an IPO, our lawyers held regular meetings with the company’s staff twice a week to share progress and issues, and maintained continuing discussion through the company’s internal chat tool, providing legal support throughout.
We handled the review of the governance structure, the board of directors and the approval system; the preparation of internal regulations and the design of the approval workflow; labor and HR issues; and related-party transactions and the management of group companies. In each case we prepared the first draft and finalised the content with the company’s staff.
Lawyers with relevant experience
Our managing partner has worked with companies in IT, finance, healthcare and pharmaceuticals, and manufacturing on M&A, IPO support in Japan and abroad, and organizational structure. On regulatory, labor and advertising matters, our lawyers include those who handle personal information protection, labor law and medical advertising regulation and have experience in labor due diligence.
Division of Roles with Your Company and Other Professionals
The following is an example of how roles are commonly divided. The actual scope of each party’s work is settled case by case with those involved.
| Lead underwriter | Advice during preparation for listing, underwriting examination, and support with the listing application and the examination process |
|---|---|
| Audit firm | Financial statement audit; internal control audit |
| IPO consultant | Overall schedule management; progress of document preparation |
| Labor and social security attorney | Aggregation of working hours, filing of work rules, social insurance procedures |
| This firm | Judgment on compliance with the law, assessment of legal risk, selection of remedies and support for their implementation, mapping of remaining risk, and review of contracts, regulations and explanatory content |
| Your company | Confirming the facts, business decisions, establishing and operating systems, preparing the application documents |
Legal coordination with financial reporting and internal control
Financial reporting, budget management and the design and operation of internal controls are led by the company’s departments and the specialists in those fields. We handle the legal aspects: contractual relationships, mapping legal risk, and internal authority and approval procedures.
Legal support for the listing application and examination
The application documents are prepared by the company, working with the lead underwriter; we support the organization and review of the legal content. We organize how a problem arose, the action taken, the current position and any remaining issues, and consider how these are described in the documents and how questions are answered.
Scope of Engagement, Fees and Steps to Starting
We normally quote stage by stage, once the scope and period have been defined. You can engage us only for identification and diagnosis and the mapping of a course of action, and decide the scope of further work in light of the result. If at that stage our involvement does not appear necessary, we will say so.
Where company-wide work is needed, it can be more efficient to combine this with the On-site Support Service and contract on a working-day basis. There is no charge for confirming the scope of work, contract terms and fees.
- Tell us about the points raised, the history to date and your internal set-up
- We set out the further facts to be confirmed and the scope of the initial fact-finding
- Proposal of scope, period and fee
- Start of work
Legal and Internal-Control Arrangements in Building a Back Office
“Building a back office” covers HR, accounting, information systems and general affairs as well as legal. Our role is the legal and internal-control part.
| Area | Principal deliverables |
|---|---|
| HR, labor and legal | Work rules and related regulations, procedures for managing working hours, regulations on authority, approval workflows, contract templates, a matter-management system |
| Advertising review | Advertising review regulations, review criteria (classified by type of expression), review workflow, review record forms, training for the staff concerned |
| Information security, personal information and data | Incident response regulations, initial-response workflow, criteria for reporting, notification and disclosure, contact structure, tabletop exercises, rules on the use of AI |
| External inquiries | Procedures for responding to inquiries, interviews and on-site inspections; internal escalation rules |
| Accounting (in cooperation) | In cooperation with the certified public accountants and consultants we work with |
Frequently Asked Questions
If we engage you, will we simply be told about more problems?
Our involvement does not end at identifying problems. We carry it through to remediation and to reflecting what has been put right in the company’s internal rules and procedures. What we present first is not a list of problems but what has been dealt with, what remains and the next steps. The scope we handle, and the scope handled by your company and other professionals, is also settled at that point.
Can you just provide templates for the regulations?
Templates alone leave regulations that diverge from actual practice, which is itself a problem in the examination. Having a regulation and operating it are treated as different things. Our basic approach is to confirm how things actually operate and then design the regulations and their operation together.
How long will remediation take?
The time needed depends on the nature of the problem, the extent of past action, the work the company itself carries out and the operating records to be confirmed. We map the facts and the remaining work and then consider the timetable. The passing of a set number of months does not in itself mean that the action is complete.
We are uneasy about our labor practices and hesitant even to look into them.
Proceeding to the examination without looking is the higher risk. We start by establishing the overall picture and mapping what needs to be done, and to what extent, in which areas. Note that setting the scope of settlement too narrowly can cause the matter to be raised again in the examination. We recommend fixing the scope first on the basis of a legal assessment and, where it is limited, being able to explain why.
We are not planning an IPO, but we want to put our systems in order.
We can help. We apply the same framework to engagements for other purposes, such as preparing for a sale by M&A or establishing the arrangements needed to start trading with large companies.
Contact
We will ask about the points currently raised, the history to date and your internal set-up, and identify where to start. There is no charge for confirming the scope of work, contract terms and fees. If our involvement does not appear necessary, we will say so.
Send us the points raised and we will discuss them with you