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BOOK SERIES | Minority Shareholders, Chapter 2: An Expensive Inheritance

Minority Shareholders, Chapter 2 of Shin Ushijima's novel carries readers into the world of family-owned companies, setting the stage for the stories to come.



In this chapter of Minority Shareholders, I continue the story of Norio Takano. He is not a specific person; he is a character created for my book out of some high rollers who had existed during the bubble period.

As a young lawyer, I witnessed the generation of enormous wealth from scratch. A minority shareholder of a family company brought an action to the court and succeeded in taking hundreds and thousands of yen. I saw it firsthand. Ten years after the bubble popped, I started work related to corporate governance. In this book my fictional characters tell the story of problems that persist in joint-stock corporations. What is an organization called a company? What if Norio Takano were reborn in this era?

This story is a work of fiction. Any resemblance to actual characters or organizations is entirely coincidental and unintentional. ー Shin Ushijima

Read earlier chapters of the series.

Minority Shareholders
Book cover, "Minority Shareholders" by Shin Ushijima.

Chapter 2: An Expensive Inheritance

Continuing from Chapter 1: Lawyer Ooki is explaining to Norio Takano that if the man in his story hadn't paid the tax, the authorities "would've moved on to auction off his house. He didn't want to let that happen, so he had no choice but to sell his house on his own to pay the tax."

"What! He was driven that far, selling his own house to pay the tax? That's incredible!"


"It really is! But it's a matter of taxation. It's our duty as citizens. It's not that he had done something wrong. It's not that he had earned a ton of money and cheated on taxes. He just inherited his grandmother's property, a small number of shares, only a 1/200 stake in Dainihon Jochugiku."

"Wow, it's almost equal to zero, isn't it?"

"Yes, any adult in his right mind would think that way, but the tax office saw it in a different light — they saw it as something of estimable value. Actually it's true that there are many ways to evaluate the inherited shares, and the tax office deliberately employed a method that helped calculate the highest amount of tax. He himself evaluated his shares at less than ¥5 million, but the tax office claimed that they were worth ¥160 million ー thirty-four times the amount. They were not shares of a listed company, so they had no market price.

Pricing Shares

"Unlisted shares basically mean nothing to those who are not related to the management," Ooki continued. "Some unlisted companies pay dividends to their shareholders and the shareholders can enjoy the receipt of the dividends. That's how it is!

"To get involved in the management of a company, you need to own a majority of the shares. So shares owned by minority shareholders are normally priced based on the total amount of dividends per year paid on such shares as a distribution of profits. And the value based on which the inheritance tax is to be calculated is ten times the amount of dividends distributed per year. That is to say, the total sum of dividends paid over ten years. I can say it's not half bad, especially in the era of low interest rates, right?

"But who dares to buy such shares? If somebody inherits such shares, they think the shares are of negligible value. And the tax office also shares the same opinion. Even if a dividend is distributed at twenty percent per share per year, the share value adds up to an amount ten times the total dividends received. Negligible, you see?"


"Hmm, I thought it was only wealthy owners that were concerned about the shares in their unlisted companies." Takano was at a loss; Ooki's explanation seemed to be beyond his understanding.

Keeping Control to Himself

Ooki, repositioning himself again in the chair, continued: "But this guy was just unlucky. I can't think of any better word to describe his situation. The tax office saw the man as one of the members of the management — a family member. 

"So they explained to him that they had counted the assets and profits of the company to evaluate his shares, just like they do for the other members of the management. Let me tell you this first.

Fami"ly companies do not necessarily distribute dividends whether they earn a lot or not, or even if they do, only a pittance. Even though the company owns huge assets, the managing members do not care about their shareholders. They believe that the company belongs to them and that the assets of the company are for its business. They don't give a damn about their shareholders. 

"So you can see many cases where the owner of the company has appropriated its real estate. He has had it registered in the name of the company though he uses it for his private purposes, not for the business of the company. As an employee's house or even a house for himself, for example. Either way is fine with him. It doesn't make any difference. It's sort of like keeping it in his own pocket or in the pocket of his company. In terms of taxation, he thinks it better to put it in the company's pocket. You see? Everything is at the discretion of the owner president. 

"The same is true for dividends. Although the company earns a huge surplus, the owner president may consider it nonsense to share profits with the shareholders, and better to keep them all to himself. 


How Many Degrees of Family Ties

"You know," said Ooki, "dividends should be allocated to shareholders in proportion to their shareholding. Therefore, the shareholder is eligible to receive dividends in proportion to the shares they own. If the money that the company has earned is put into the president's own pocket, it is a salary paid to the president. If he allocates it to himself in the form of a salary, he doesn't have to share it with the other shareholders.

"Suppose the owner president has a 51% stake in the company, he gains double the income if he gets it as a salary instead of sharing it with the shareholders. So, as a matter of course, very few presidents are willing to pay dividends. That's human nature.

"Considering that, it is not unusual for the tax office to think that the owner president's shares are of higher value while the minority shareholders' shares are of lower value. It holds true, in a way. The problem arises in such cases where a shareholder is a cognate of the owner president, but does not benefit from any of the surplus the company has gained."

"A cognate? What benefit?"

Takano could not help but show strong concern for Ooki's story, seemingly forgetting about the shares in the unlisted company, for which he had come to see Ooki. Takano himself owned a number of companies, none of which were listed. He had his acquaintances own shares of some of his companies. The story by Ooki was applicable to his situation.

Degrees of Kinship

"A cognate means a relative, such as a spouse, a person within the sixth degree of kinship and a person within the third degree of matrimonial relationship, which is stated in the regulations written by the tax office. If you fall into any of the said categories, you may be regarded as a player in management simply on the grounds that you are related by blood. You may think it sounds ungrounded, but it's reality."  


"A blood relative? So they may chase up a blood relative. Quite traditional, isn't it?" 

"I wonder! But as the proverb says, 'blood is thicker than water.' Not only does the tax office say that blood counts a lot, but it holds true for humans. We act based on that, don't we? In the world, very very few people give away their money to a non-related person expecting nothing in return. Even if they did, they would skimp on it. But when it comes to a parent-child relationship, well, it is natural for a parent to give money to his child, right? There are plenty of grandpas and grandmas out there who generously give money to their grandchildren. But they don't show the same generosity to non-related children."

"Yeah, it's something that you should not meddle in."

"You're right. Your child is your world, your grandchild your dearest. It's blood that works, isn't it? A wholesome society, you see? But the tax office pokes its meddlesome nose into others' affairs. They sniff a whiff of something wrong happening and interfere in it even if it's done by someone as a purely selfless act.

Small Business, Great Cause

"Anyhow, the tax office works for the public in the great cause of impartial taxation. So, I have to admit they are doing the right thing."

"Yeah, I see your point, but……"


"I don't think even you have had all your fortune registered in your own name. How about that house in Himonya you live in, for example?"

"Yes, it is in my company's name. But it's just a small business. My mother's boyfriend bought it for her. Then I incorporated it and I am buying her shares little by little as an allowance to her. Besides me, my mother, my wife and my children are listed as shareholders. That said, anyway, everything belongs to me after all. I got my accountant to register it as an employee's house."

"At first everyone does as you did, but in the course of time, shares will be dispersed. If you have children, they will have your grandchildren. But not all of them are to be involved in the management. Only a part of them are. When it comes time for you to have to distribute your fortune, if you have everything registered in your company's name, you have nothing to give to your children who are not to take over your business. Then instead, you decide to give them a small number of shares, and although they don't appreciate such a negligible number of shares, the tax office does."

"I wonder what the tax office is aiming for."

"Well, the value of the company is reflected in the shares of the owner president. What is surprising about a business corporation is that only a 51% stake is enough for the owner president to gain control of the company."

Continues in: Minority Shareholders, Chapter 3: The Taxing Magic of 'Fives'



Minority Shareholders is a work of fiction and any similarity to real characters, companies and cases is purely coincidental and unintentional. Sign up to join our mailing list and look for the next chapter every Saturday on JAPAN Forward.

Author: Shin Ushijima

The founding partner of Ushijima & Partners, lawyer Shin Ushijima has an enormous wealth of experience in international transactions, merger and acquisition, dispute resolution, system development, anti-monopoly law, labor, and tax law. Concurrently, he heads an NPO called the "Japan Corporate Governance Network." And in his leisure moments, he writes fiction. Additional details on Shin Ushijima's career, awards, publications and more are available at his website: Ushijima & Partners, Attorneys-at-Law.


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