Legal Issues Examined in the IPO Listing Review: Related Party Transactions, Permits and Licenses, and Anti-Social Forces

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

Imagine that, while preparing written answers to questions in the listing review, you are asked by the lead underwriter or the TSE's reviewer, "When was that transaction discovered, and through what steps was it corrected?" Simply stating the conclusion that the transaction has been unwound is not a sufficient answer if the materials showing the course of events from discovery to correction are not in place.

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.

The scope of the review is wide-ranging. In addition to permits and licenses and the legal compliance structure, the review checks related party transactions, governance, the severance of relationships with anti-social forces, the status of labor, intellectual property and litigation, the accuracy of disclosure and more. A distinctive feature is that the review goes beyond the existence of rules to examine the actual operating track record and the ability to explain it.

The Difference Between the Formal Requirements and the Substantive Review Criteria

The listing review for the TSE Growth Market consists of two criteria of differing nature: the formal requirements under Article 217 of the Securities Listing Regulations and the substantive review criteria under Article 219 of the same Regulations.

The formal requirements include items judged by figures, such as at least 150 shareholders, a market capitalization of tradable shares of at least JPY 500 million and at least one year of business operation. These are examples, and conditions relating to matters such as the audit report and restrictions on the transfer of shares are also prescribed. The numerical conditions, too, are checked in light of the calculation date for each item and the expected public offering and secondary offering accompanying the listing.

The substantive review criteria, by contrast, are qualitative criteria that cannot be judged by figures alone. The "New Listing Guidebook (Growth Market)" explains that the substantive review criteria consist of five eligibility requirements demanded of listed companies, with the specific perspectives set out in guidelines (page 47 of the Guidebook). The five requirements are the appropriateness of disclosure, the soundness of corporate management, the effectiveness of governance and the internal management system, the reasonableness of the business plan, and matters the TSE deems necessary from the perspective of the public interest or the protection of investors (page 48 of the same).

The same Guidebook states that even where a company is judged to meet the criteria, the TSE may request improvements so that it reaches a more desirable state (page 47 of the same). Meeting the criteria is positioned less as a fixed end point than as something achieved through repeated improvements in the course of the review. The division of roles among the lead underwriter's underwriting review, the financial statement audit and the TSE review is explained in detail in The Legal Schedule for IPO Preparation: The N-3, N-2 and N-1 Labels and How to Prepare the Audit Certification and Operating Track Record.

Soundness of Corporate Management and Related Party Transactions

The second of the substantive review criteria, the soundness of corporate management (Article 219, paragraph 1, item 2 of the Regulations), requires that the company "conducts its business fairly and faithfully" (page 61 of the Guidebook). The matters checked include whether there is any improper provision or receipt of benefits with related parties, officers' family relationships and concurrent positions, and independence from the parent company and the like.

What is questioned in the review is not limited to whether such transactions exist. The reasonableness of continuing the transaction (its business necessity) and the appropriateness of the terms are examined strictly. The same Guidebook cautions that even if the terms are appropriate in comparison with third parties, the transaction may be regarded as an improper provision of benefits if there is no reasonableness in carrying out the transaction itself (page 62 of the same). It is not enough to put the terms in order; the organization must be able to explain why the transaction is necessary.

Pre-Check List 4 (page 107) sets out five check items for cases where transactions with related parties and the like exist. First, the reasonableness of continuation; second, the appropriateness of the terms; third, periodic review; fourth, reflection in the audit items; and fifth, preparation for appropriate disclosure. Even transactions intended to support the company on terms favorable to it are not accepted unconditionally, and disclosure is a prerequisite. If the influence of the supporter becomes excessive, this may be regarded as an improper receipt of benefits. The review also checks whether there is a mechanism for capturing all such transactions without omission and for exercising checks over them.

The approval procedures under the Companies Act and the treatment of persons with special interests are explained in Conflicts of Interest in Intra-Group Transactions: Approval Procedures and Minutes in Practice. In the listing review, in addition to the approval minutes required by law, it is necessary to have in place evidence of having considered the reasonableness of continuation and the appropriateness of the terms, and operating records of periodic review through audits by company auditors and the like.

Effectiveness of Corporate Governance and the Internal Management System

The third of the substantive review criteria (Article 219, paragraph 1, item 3 of the Regulations) requires that governance and the management system be put in place according to the size of the company and the like and be "functioning appropriately" (page 69 of the Guidebook). The five matters checked are the structure for the execution of duties by officers, the management system supporting business activities, securing the necessary personnel, an accounting organization suited to the actual situation, and an effective legal compliance structure.

Regarding the corporate governance structure, Articles 436-2 to 439 of the Securities Listing Regulations require securing at least one independent officer (an outside director or outside company auditor who is unlikely to have a conflict of interest with general shareholders), establishing a board of directors and a board of company auditors or the like, and appointing an accounting auditor. In addition, securing at least one outside director and establishing an IR structure are also prescribed as matters to be observed (pages 69 to 70 of the same).

For internal audits, the question is whether a structure has been built that allows them to be conducted from a fair and independent standpoint (pages 73 to 74 of the same). As for the internal whistleblowing system, the review checks, in addition to the internal desk, whether a desk independent of management has been established, the procedures for responding from receipt of a report through to correction, and the state of rules for protecting whistleblowers (page 75 of the same). Even if there have been zero reports, the effectiveness of the system is confirmed through efforts to publicize it and encourage its use.

Board of directors operations in practice are covered in Board Meeting Operations in Practice: Convocation, Resolutions, Minutes and Written Resolutions, and the statutory 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. The review checks not only the existence of rules but also the reality of their operation, such as copies of sent convocation notices, minutes, records of internal audits conducted, and records of receipt and response where reports have been made.

Permits, Licenses and Contracts Underpinning the Business, and Legal Risk

Guideline IV 6(3), which gives concrete form to the fifth of the substantive review criteria (Article 219, paragraph 1, item 5 of the Regulations), contains a criterion for checking whether any factor has arisen that would impede the continuation of matters that are prerequisites for the main business activities. The matters covered are key permits, licenses and registrations, or sales agency agreements and manufacturing outsourcing agreements (page 79 of the Guidebook).

For businesses that depend on administrative permits and licenses or on contracts with particular counterparties, losing them makes it difficult to continue the business. The TSE Growth Market formats include a submission form titled "Matters That Are Prerequisites for the Main Business Activities." Rather than simply listing expiry dates, the company checks, against the originals of the contracts and permit and license certificates, whether there are any facts constituting grounds for revocation or termination.

Labor, intellectual property, personal information and litigation do not have independent items in the substantive review criteria. They are, however, reviewed through soundness of management, the legal compliance structure and the disclosure of risk information. As examples of risk information, the same Guidebook cites the risk of losses from leaks associated with holding a large volume of personal information, the risk of important lawsuits or similar matters arising, and the risk of high dependence on a particular technology (pages 55 to 56 of the same).

In hearings, explanations of the background and content of litigation, disputes, administrative guidance and the like in the past three years and in the application period are checked (Pre-Check List 6 of the same, page 112). The mere existence of past disputes does not mean that a listing will be denied. However, matters with a significant impact on the business are explained carefully, taking into account the views of attorneys or other experts. Whether there is unpaid overtime pay and the ownership of rights in employee inventions are also issues that should be resolved by the application period.

Excluding Anti-Social Forces and Records of the Response When Problems Are Discovered

The substantive review criteria provide that the company must have established a structure to prevent anti-social forces from becoming involved in its business activities, and that its actual state must be recognized as appropriate (Guideline IV 6(4)). Not only direct relationships, but also cases where the company is involved in such forces' activities through providing funds or intentional interaction, are judged inappropriate (page 80 of the Guidebook). The scope of the check is not limited to the corporate group itself, but extends to officers and persons equivalent to them, major shareholders and key business partners.

In the review, confirmation is made through the submission of documents such as a "confirmation letter showing that there is no relationship with anti-social forces." In light of the "Guidelines for How Companies Prevent Damage from Anti-Social Forces" and similar materials, the review asks whether the company has established and operates internal procedures for periodic investigations, checks when starting new transactions and severance in an emergency.

Even where there have been legal violations or inappropriate transactions in the past, that fact alone does not immediately mean that a listing will not be approved. The same Guidebook explains that, depending on the seriousness, the TSE carefully checks the status of curing the legal defect and the structure for preventing recurrence (pages 75 to 76 of the same). Serious violations are treated as a significant issue in the review even if they have been formally cured.

In practice, the process for responding to problems is what is questioned. It is necessary to have in place evidence that the flow from discovery through investigation and correction to prevention of recurrence was carried out on an organizational basis. The company puts itself in a position to explain in writing when the problem was discovered, how it was investigated and addressed, and how a system of checks was put in place. These records are also referred to by the lead underwriter and the audit firm. The division of roles among the three parties is laid out in The Legal Schedule for IPO Preparation: The N-3, N-2 and N-1 Labels and How to Prepare the Audit Certification and Operating Track Record.

Primary Materials for the Review and How to Contact Us

In responding to hearings and written questions in the listing review, being prepared to show immediately where primary materials are located is helpful. Organizing where the following primary materials are stored within the company is the starting point for the initial response.

• A list of transactions with related parties and the like, together with materials considering their reasonableness and appropriateness and the approval minutes
• A list of permits, licenses and contracts that are prerequisites for the main business activities, and a management table of expiry dates and grounds for revocation or termination
• A list of disputes, conflicts and administrative guidance in the past three years and in the application period, and materials on the course of the response
• The status of preparing the confirmation letter showing that there is no relationship with anti-social forces, and the scope of persons subject to confirmation
• Records of publicizing and operating the internal whistleblowing system, records of internal audits conducted, and records of correction and prevention of recurrence when problems were discovered

What is questioned is not merely the existence of rules or ledgers, but whether they are kept as actual operating records. If, at the point of compiling the list, items with thin records are found, work on putting them in order is started as a priority.

At LegalAgent, we provide support ranging from preparing explanatory materials on related party transactions, managing the deadlines of permits, licenses and contracts, and confirming the absence of relationships with anti-social forces, to organizing the correction process when problems are discovered. The details of support specialized for the listing review can be found at IPO Support. How to proceed through the preparation stage as a whole is covered in detail in The Legal Schedule for IPO Preparation.

For specific consultations, please contact us through the IPO Support page. We help put in place a legal structure suited to your company's issues.

Frequently asked questions

If even one legal violation or inappropriate transaction is found in the listing review, does that immediately make listing impossible?

This likely cannot be said across the board. Regarding the criteria for the legal compliance structure, Japan Exchange Group's New Listing Guidebook explains that where there has been a legal violation or a risk of one, the exchange carefully checks, according to its seriousness, the status of curing the legal defects arising from the violation and the status of putting in place a structure to prevent recurrence. What is examined is likely whether the company has systematically carried out the series of responses of discovery, investigation, impact assessment, correction, recurrence prevention and disclosure decisions, and has kept records that allow it to explain them.

As long as transactions with related parties have been approved by resolutions of the board of directors or the shareholders' meeting, will they not be a problem in the listing review?

An approval resolution alone is likely not sufficient. The listing review checks not whether the transaction exists, but the reasonableness of continuing it (its business necessity) and the appropriateness of its terms, and the track record of operation, such as whether the transaction is made an item checked in audits and is reviewed periodically, is also subject to review. In addition to the approval procedures under the Companies Act, the company likely needs to keep records showing that it has systematically considered the reasonableness of continuation and the appropriateness of the terms.

If we pass the lead underwriter's underwriting review, can we also pass the TSE's listing review under the same criteria?

It likely cannot be said that you will pass under the same criteria. The underwriting review by the lead underwriter, the accounting audit by the audit firm and the listing review by the TSE are separate procedures with different bases and purposes. The TSE's substantive review criteria are likely judged independently based on the five eligibility requirements under Article 219 of the Securities Listing Regulations (appropriateness of corporate disclosure, soundness of corporate management, effectiveness of corporate governance and the internal management system, reasonableness of the business plan, and other matters necessary from the perspective of the public interest or the protection of investors).