The Legal Schedule for IPO Preparation: N-3, N-2, N-1 and the Audit Certification

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

Imagine a company that has begun considering a listing, where the head of administration is wondering "how many years in advance we should start preparing." Before meetings with the lead underwriter and the audit firm get fully under way, management also wants to get a concrete sense of the schedule.

In what follows, I explain the topic after reviewing the version of the Tokyo Stock Exchange New Listing Guidebook (Growth Market) (Japanese) updated on July 21, 2026.

In practice, the fiscal year of the application is called the N period. A widely used classification refers to the year before it as the N-1 period, the year before that as the N-2 period, and the year before that as the N-3 period. These labels are a practical classification for building a common understanding among the parties involved. They are not statutory periods prescribed by the Companies Act, the Financial Instruments and Exchange Act or the rules of the Tokyo Stock Exchange (the "TSE"). Rather than assuming across the board that "a company cannot list unless it starts in the N-3 period," I separate the periods that can be confirmed in published materials from the preparation periods that differ from company to company.

When to put a legal structure in place with a listing in mind, and the items for comparing outside attorneys in light of IPO work, are explained in detail in How to Choose Outside Counsel for a Startup.

Working Backward from the Listing Date and the Audit Certification

The first thing to determine in relation to the exchange rules is the period covered by the audit certification. The TSE's published "Listing Schedule" states that audit certification for the two most recent periods is required by the time of applying for listing on the Growth Market. The financial statements and other information in the "Securities Report for New Listing Application (Part I)" must be accompanied by a report on an audit or similar review conducted pursuant to the Securities Listing Regulations in accordance with Article 193-2 of the Financial Instruments and Exchange Act. This should be understood as having a different basis from the statutory audit imposed on disclosure documents under the Financial Instruments and Exchange Act.

Regarding the audit opinion, the TSE as a rule requires an "unqualified opinion" or a "qualified opinion with exceptions" for the periods other than the most recent year, and an "unqualified opinion" for the most recent year (pages 38 to 40 of the same Guidebook). Because there are also exception provisions relating to the going concern assumption and comparative information, where there are exceptions or similar matters, their content is checked against the conditions of each exception before a judgment is made. To have audit certification for the two most recent periods in place, the financial closing and audit steps for the two fiscal years concerned are planned by working backward from the time of application.

As for the TSE's review period, the same Guidebook indicates that the standard review period for the Growth Market is two months. This is the standard where there are no particular issues, and in practice extensions or schedule adjustments occur depending on the size of the company and the status of confirming issues. Where a preliminary application is filed, the period is calculated from its filing date. Note that the period of the underwriting review conducted by the lead underwriter before the listing application is not included in this.

Therefore, when working backward from the listing date, the company confirms the two most recent periods requiring audit certification and builds its plan using the TSE's two-month standard review period as a guide. It also allows some leeway for an extended review period. The periods before that, for the lead underwriter's review and for putting internal structures in place, vary depending on the size of the business and the current state of its management structure. The specific number of years of preparation that your company needs is determined through individual discussions with the lead underwriter and the audit firm.

The Legal Inventory at the Start of Preparation

The overall picture of legal work from the founding stage to Series A is covered in What Is Startup Legal Work? Legal Advisors and Financing from Seed to Series A. In IPO preparation, building on that foundation, the first task is an inventory checking whether the records accumulated since the company's incorporation exist.

• Consistency between the content of the articles of incorporation and the entries in the certificate of registered matters, and the history of changes in the corporate governance structure
• The shareholder register and the history of share movements since incorporation, and the minutes for capital increases and transfer approvals
• The terms of issue of stock options, allotment agreements, and records of exercise or waiver
• A complete set of minutes of shareholders' meetings and board of directors meetings (convocation, resolutions, records and necessary signatures, etc. for each type and format of meeting)
• Whether related party transactions (transactions between group companies and transactions with individual officers) apply, and the approval records
• The execution status and rights and obligations under key master transaction agreements, service agreements and terms of use
• The status of obtaining the permits, licenses and notifications necessary for business operations, and their expiry dates
• The state of labor management, such as work rules, Article 36 agreements and the calculation of premium wages, and whether there are any unpaid amounts
• Ownership of intellectual property rights such as employee inventions, copyrighted works, trademarks and the use of OSS
• Whether there have been any past disputes, complaints or administrative guidance, and the history of responses
• The handling of personal information held and its consistency with the privacy policy

Among the individual issues, the corporate governance structure and the operation of meetings are explained in detail in Board Meeting Operations in Practice: Convocation, Resolutions, Minutes and Written Resolutions, the items to be recorded in minutes in How to Prepare Minutes of Shareholders' Meetings and Board Meetings: Statutory Items and What Registration and DD Look At, and related party transactions in Conflicts of Interest in Intra-Group Transactions: Approval Procedures and Minutes in Practice. For items where the inventory reveals gaps in past records, remedial steps are taken one by one as corrective tasks in the day-to-day operation of meetings and contract review.

Internal Management Structure and Operating Track Record

The date on which internal rules were newly established is not enough, on its own, to explain the effectiveness of the management structure in the listing review. The TSE's substantive review criterion, "Effectiveness of Corporate Governance and Internal Management System of the Enterprise," states that the structure should be put in place according to the company's size and maturity and should be "functioning appropriately" (page 69 of the same Guidebook). It is important to keep not only the date on which rules were established but also operating records showing that resolutions and approvals have been repeatedly made in line with those rules.

Even if board of directors regulations are in place, effectiveness cannot be shown if copies of sent convocation notices or the minutes of resolutions are missing. Where written resolutions are used, the requirements of Article 370 of the Companies Act must be satisfied, such as a provision in the articles of incorporation, the consent in writing or by electronic record of all directors who may participate in the vote, and the absence of any objection by the company auditors. In addition, under Article 369, paragraph 3 of the same Act, the directors and company auditors who attended must sign or affix their names and seals to the minutes, and where the minutes are an electronic record, measures such as an electronic signature must be taken under paragraph 4 of the same Article. The very practice of accumulating convocation procedures and records in accordance with the law becomes the legal audit trail in the review.

This way of thinking applies equally to the internal whistleblowing system, contract review and the approval flow for related party transactions. The date on which rules were established is checked separately from the actual operation of the consultation desk, the review history and the approval minutes. Where there have been no whistleblowing reports, effectiveness is confirmed through matters such as how the system has been publicized and its use encouraged, and the operating structure of the consultation desk. Zero reports does not in itself mean a deficiency. If the company reaches the application period with scant operating records, it will be able to present materials for only the most recent few months, making it difficult to give a sufficient explanation in the review.

Resolving Issues and Disclosure Documents in the Period Immediately Before Application

Even if operating records have been accumulated throughout the preparation period, legal issues requiring individual resolution surface in the period immediately before the application.

• Checking for defects in past procedures for issuing shares and stock options (collecting allotment agreements and waivers)
• Whether there are any pending matters or matters with a risk of dispute, and their degree of impact on the financial statements and disclosure documents
• Investigation and confirmation regarding the severance of any relationship with anti-social forces
• Consistency of the purposes of use of personal information held, provision to third parties and management of contractors with the privacy policy
• Checking the actual practice regarding unpaid premium wages and fixed overtime pay
• Confirming the ownership of intellectual property rights relating to employee inventions and deliverables under service agreements

As mentioned in Advanced Issues in Tax-Qualified Stock Options: Exercise Price, Tax Reform, Overseas Residents and M&A, when sorting out stock options, the status of collecting waivers from departed employees is questioned in the review. However, one cannot immediately conclude that the rights survive simply because there is no waiver. Grounds such as extinction through expiry of the exercise period or loss of conditions, acquisition and cancellation by the company, and waiver by the right holder are judged objectively from the terms of issue and the contracts. A temporary failure to satisfy conditions is also distinguished from inability to exercise rights under Article 287 of the Companies Act. The records of approvals and subsequent reports covered in Conflicts of Interest in Intra-Group Transactions are also subject to checking in the period immediately before application.

On the Growth Market, questions and hearings are conducted based on the draft disclosures in "Part I," the "Various Explanatory Materials Concerning the New Listing Applicant" and the "Matters Related to Business Plan and Growth Potential." The documents to be submitted differ by market, and on the Growth Market "Part II" is not included in the submission materials. The matters stated in the various documents must be consistent with the primary legal sources, such as the certificate of registered matters, minutes and contracts. Day-to-day operating records are used to substantiate the application materials. Even where explanatory materials are newly prepared for the application, the explanation is based on recorded facts.

Division of Roles Among the Lead Underwriter, the Audit Firm and the Attorneys

In listing preparation, three procedures proceed in parallel: the lead underwriter's underwriting review, the audit firm's financial statement audit and the TSE's listing review. Because each has a different legal basis and review purpose, the fact of having passed one procedure does not guarantee passing the others.

The lead underwriter's underwriting review is a review to determine whether underwriting is appropriate, based on the securities company's own criteria in light of the self-regulatory rules of the Japan Securities Dealers Association and the like. The audit firm expresses an audit opinion on the financial statements from an independent standpoint. An audit conducted in accordance with the listing regulations and an audit under the Financial Instruments and Exchange Act have different bases, and which audit opinion is expressed is determined by the results of the audit. The TSE's listing review is conducted, based on the formal requirements and the substantive review criteria, by Japan Exchange Regulation, which is entrusted with performing the actual review.

The role of the attorneys differs from substituting for the reviews by these three parties. It lies in putting the legal materials in a state where they can be explained without inconsistency in each review. Checking minutes, contracts, labor materials and the like is a prerequisite for the audit firm's verification of the accounting figures, and is also directly linked to the lead underwriter's underwriting review and to the confirmation of sound management under the TSE's substantive review criteria. Because the same legal materials are referred to in multiple reviews, preparation proceeds in step with the lead underwriter and the audit firm through repeated discussions with them.

A Guide to Legal Tasks and How to Contact Us

A guide to the legal tasks, working backward from the application date, is as follows. Because the existing level of management differs from company to company, items with larger gaps are started ahead of schedule.

Approximate timing	Examples of legal tasks
12–9 months before	Checking the articles of incorporation, registration, shareholder register and SO ledger; identifying related party transactions
9–6 months before	Checking the state of the minutes; confirming the effect of, and liability for, unapproved conflict-of-interest transactions and correcting them; checking the expiry dates of permits and licenses
6–3 months before	Checking the execution status of key contracts; labor review (checking fixed overtime pay, Article 36 agreements and unpaid wages); confirming the ownership of intellectual property rights
3–1 months before	Checking the consistency of the handling of personal information with the privacy policy; checks on disputes and anti-social forces; final confirmation of the existence of SOs and the supporting materials
Immediately before application	Cross-checking "Part I" and the various explanatory materials against the legal materials; checking the content of the audit report; preparing answers to questions from the TSE

Legal violations, missing permits or licenses and labor deficiencies are addressed promptly as soon as they are discovered, without waiting for the timing in the table. Past minutes are not prepared after the fact with dates or content that differ from the facts; instead, the fact-finding and the course of any necessary correction are kept on record. This table is one example assuming 12 months, and the start dates will move earlier or later depending on the closing schedule for the two audited periods and discussions with the various parties involved.

When checking your company's legal structure, first prepare four items: the current articles of incorporation and certificate of registered matters, the shareholder register, a list of issued stock options, and the minutes of shareholders' meetings and board of directors meetings for the most recent year. As an entry point for checking the history since incorporation, cross-checking these basic materials makes it easier to grasp the issues to be tackled first.

At LegalAgent, we provide support ranging from the legal inventory in IPO preparation and putting in place operating track records for minutes, contracts and the like, to resolving issues in the period immediately before application, on the premise of discussions with the lead underwriter and the audit firm. Support specialized for listing preparation is available through IPO Support, and ongoing structural development, including capital policy and corporate governance structure from Series A onward, is also available through Startup Legal and Financing Support.

For a comparison of support arrangements, including retainers, see How to Choose Outside Counsel for a Startup. Specific consultations tailored to your company's schedule are accepted through the IPO Support page.

Frequently asked questions

What do N-3, N-2 and N-1 mean? Are they legal terms?

They are likely not statutory terms. In practice, the fiscal year in which a company applies for listing is called the N period, the year before it the N-1 period, the year before that the N-2 period, and so on, but these are not terms defined by the Companies Act, the Financial Instruments and Exchange Act or the rules of the Tokyo Stock Exchange. What can be confirmed in a form close to a statutory requirement is that audit certification for the two periods immediately preceding the application is required by the time of the listing application, and this can be confirmed in JPX's "Listing Schedule."

If we put in place work rules and board of directors regulations, will we meet the internal management system requirements in the listing examination?

Establishing regulations alone is likely insufficient. JPX's listing examination criteria examine whether corporate governance and the internal management system are in place in a manner suited to the company's size, maturity and other factors and are functioning properly, and records of actual operation, showing that resolutions, reports and approvals based on the regulations have repeatedly taken place, are likely necessary separately from the date on which the regulations were established.

How many months in advance should the legal schedule for listing preparation begin?

Because it depends on the state of the company's existing arrangements, a uniform number of months cannot be stated definitively. Starting from the financial statement and audit schedule for the two immediately preceding periods that require audit certification and the examination period for JPX's Growth Market (two months), it is necessary to bring forward the start date according to the results of a legal inventory, in consultation with the lead underwriter and the audit firm.