Shareholder Agreement for Japanese Startups: A Practical Guide

A shareholder agreement (株主間契約, Kabunushi-kan Keiyaku) is not legally required in Japan, but it's critical for startups. Without one, co-founders and investors are left with only the Companies Act (会社法) defaults — which rarely reflect the actual intentions of the parties.

The Fintech Association of Japan published standard SHA templates in March 2025, making it easier than ever for startups to draft proper agreements. This guide covers the essential clauses, J-KISS framework, and how to share these sensitive documents securely.

Why You Need a Shareholder Agreement

The Companies Act provides basic rules for corporate governance, but it doesn't address:

• What happens when a co-founder leaves
• How to handle deadlocks between equal shareholders
• Whether existing shareholders can block new share issuances
• Non-compete obligations for departing shareholders
• How to force or join a company sale

A SHA fills these gaps. It's a private contract between shareholders — not filed with any government agency, not part of the company's articles of incorporation (定款).

Essential Clauses

1. Equity Ratio (持分比率)

Define each shareholder's ownership percentage and the vesting schedule for founders. Standard Japanese startup vesting:

Period	Vested Percentage
Year 1	25% (cliff)
Year 2	50%
Year 3	75%
Year 4	100%

2. Voting Rights (議決権)

Specify which decisions require simple majority, supermajority (2/3), or unanimous consent. Critical decisions typically requiring supermajority or unanimous:

• Changes to articles of incorporation
• Issuance of new shares
• M&A or asset sales
• Changes to business direction
• Budget approval above threshold

3. Pre-emption Rights (先買権)

Existing shareholders get the right to purchase shares before they're offered to outsiders. This protects against unwanted third-party investors and maintains ownership percentages.

4. Drag-Along Rights (ドラッグアロング)

Majority shareholders can force minority shareholders to join a company sale. Essential for exit scenarios — without this clause, a single minority shareholder can block an acquisition.

5. Tag-Along Rights (タグアロング)

Minority shareholders can join a sale initiated by majority shareholders on the same terms. Protects minority shareholders from being left behind in an exit.

6. Non-Compete (競業避止)

Departing shareholders/founders cannot start or join competing businesses for a specified period (typically 1-2 years in Japan). Must be reasonable in scope, geography, and duration to be enforceable.

7. Deadlock Resolution (デッドロック解消)

What happens when shareholders with equal voting power can't agree? Common mechanisms:

• Mediation by a neutral third party
• Put/call options (one party buys out the other)
• Shotgun clause (one party names a price, the other must buy or sell at that price)
• Dissolution as a last resort

8. Anti-Dilution (希薄化防止)

Protects early investors from dilution in down-round financings. Types:

Type	Protection Level
Full ratchet	Strong — adjusts to new lower price
Weighted average (broad)	Medium — most common
Weighted average (narrow)	Moderate
No protection	None

J-KISS: Japan's Convertible Note Framework

J-KISS (Keep It Simple Security) is Japan's standardized convertible note framework, modeled after Y Combinator's SAFE. It's widely used for seed-stage fundraising because:

• Simple terms reduce legal costs
• Delays valuation until Series A
• Standardized format investors understand
• Converts to equity at a discount or with a valuation cap

The J-KISS template is freely available from the Coral Capital website.

Dispute Resolution

Japanese startup SHAs typically specify:

1. Negotiation — Good faith discussion between parties
2. Mediation — Through bar associations or commercial mediation
3. Arbitration — Japan Commercial Arbitration Association (日本商事仲裁協会, JCAA) for confidential proceedings
4. Litigation — Tokyo District Court as the agreed jurisdiction

Arbitration is preferred for SHAs because proceedings are confidential — unlike court litigation, which is public.

How to Share SHA Drafts Securely

Shareholder agreements contain the most sensitive startup information: equity splits, valuation expectations, voting control structures, and exit strategies. Leaking these documents can damage fundraising, partnerships, and founder relationships.

LOCK.PUB provides a secure way to share SHA drafts:

• Create a password-protected memo with the SHA draft text
• Share the link via email and the password via iMessage or Messenger (or another separate channel)
• Set an expiration date so the document isn't accessible after negotiations conclude
• No accounts required on either side — useful for sharing with advisors and potential investors

For cap table sharing during due diligence, create separate LOCK.PUB memos for each document to control access individually.

Common Mistakes

1. No SHA at all — Relying solely on the Companies Act
2. No vesting schedule — Co-founders leave with full equity on day one
3. No drag-along — One shareholder can block any exit
4. Overly restrictive non-compete — May be unenforceable if unreasonable
5. No deadlock mechanism — 50/50 splits with no resolution path
6. Sharing via unencrypted email — Cap tables and SHAs leaked to unintended recipients

Conclusion

A shareholder agreement isn't required by law, but it's essential in practice. Use the Fintech Association's standard templates as your starting point, customize for your specific situation, and have a startup-experienced lawyer review the final version.

When sharing drafts with co-founders, investors, and advisors, treat these documents with the same security as your cap table. LOCK.PUB makes it easy to share sensitive documents securely — password-protected, time-limited, and without leaving permanent copies scattered across email inboxes.

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Need to share a shareholder agreement or cap table securely? LOCK.PUB lets you create password-protected memos with expiration — no sign-up required.