Outline of the Notification System for Specially Permitted Businesses for Qualified Institutional Investors, etc., and Its Use in GK + TK Investment Schemes

1. The QII Special Business Exemption: Notification in Lieu of Registration under the FIEA

As a general rule, an entity which solicits investors and manages their assets in the conduct of a fund business must obtain registration under the FIEA, which is subject to stringent requirements — namely, registration as a Type II Financial Instruments Business (dealing in such instruments as shares and corporate bonds) and/or as a Type II Financial Instruments Business (dealing in such instruments as deemed securities, collective investment scheme interests [fund interests], securitization/liquidation products, tokens, and the like), and Investment Management Business registration.

By way of exception, however, where an entity conducts its business vis-à-vis a clientele consisting of one or more qualified institutional investors (i.e., professional investors; "QIIs") together with no more than 49 investors who are not qualified institutional investors (each, a "general investor"), among other requirements, that entity may carry on its fund business — that is, the sale and solicitation of fund interests and the operation of the fund — upon a simple notification alone, without registration as Type I and/or Type II, and without Investment Management Business registration.

For an outline of the specially permitted business for qualified institutional investors, etc. (the "Special Business"), please refer to the diagram below.

(* Official website of Japan's Ministry of Finance: https://lfb.mof.go.jp/kantou/kinyuu/kinshotorihiki/tokureigyoumugaiyou.pdf)

2. Prohibited Counterparties and Transfer Restrictions Applicable to Notifiers and General Investors under the QII Special Business Regime

A point requiring particular care here is that a notifier of the Special Business (a "Notifier") is prohibited from selling fund interests to any of the following three categories of person:

• (i) a specific purpose company (an SPC or tokutei mokuteki kaisha, "TMK") whose asset-backed securities ("ABS") are held by general investors;
• (ii) the operator (eigyosha) of a silent partnership (tokumei kumiai, "TK") arrangement under which a general investor is admitted as a silent partner; and
• (iii) a person equivalent to those described in (i) or (ii) above.

Put simply, the Notifier must not sell to the general investors concealed behind the vehicle (the SPC/TMK or the TK). The object of the rule is the protection of general investors.

Likewise, and from the same standpoint of protecting general investors, a general investor who has acquired such fund interests is subject to the following restrictions:

• (i) the investor may not, after acquisition, break up and on-sell the interests at will — accordingly, a transfer restriction must be imposed prohibiting any transfer other than a transfer of the interests in bulk to a single transferee (i.e., passing the whole over to one person); and
• (ii) in order to prevent circumvention of the numerical limit by fragmenting the issuance, where interests of the same class are issued within the six-month period preceding the date of issuance of the relevant interests, the aggregate number of general investors who have responded to the solicitation to acquire all such interests must not exceed 49.

Incidentally, the Notifiers currently on record may be confirmed on the following official website of the Financial Services Agency (the "FSA"):
https://www.fsa.go.jp/menkyo/menkyoj/tokurei.html

3. Categories of Eligible Investors: QIIs and General Investors

The categories of "qualified institutional investor (QII)" referred to herein include, by way of example, Type I Financial Instruments Business operators, investment management business operators, investment corporations, banks, insurance companies, shinkin banks (credit unions), and individuals who have filed a notification with the Commissioner of the FSA (holding a balance of securities of at least JPY 1 billion and having held a securities account for at least one year), among others.

By way of further example, an enterprise that had filed its notification on or before 1 June 2026 may be confirmed at the following link maintained by the FSA:
https://www.fsa.go.jp/common/law/tekiyogai/02_b.pdf

The categories of general investor referred to herein include, by way of example, the national government, local public entities, listed companies, and individuals (holding investment type financial assets of at least JPY 100 million and having held a securities account for at least one year), among others.

4. Where the activity falls within the scope of the Special Business → No registration required

Where the activity in question constitutes self-management — that is, the management of money contributed by investors — within the meaning of Article 63, paragraph (1), item (ii) of the FIEA, registration as an Investment Management Business is not required. In other words, the act of managing the assets of a fund whose investors consist solely of qualified institutional investors, etc., may be carried on upon notification alone.

5. The QII Special Business in Practice: Leveraging the GK + TK Structure for Private Placement Real Estate Funds

The notification regime for the Specially Permitted Business for Qualified Institutional Investors, etc., is frequently employed in connection with GK + TK private placement funds.

For instance, where a special purpose vehicle ("SPV") structured as a godo kaisha ("GK") files a notification of the Special Business, it may sell fund interests to one or more qualified institutional investors and to as many as 49 general investors without obtaining registration as a Type II Financial Instruments Business.

Practical Implications for the GK + TK scheme

This is one of the principal reasons why the GK + TK structure is so widely used in real estate funds.

Where a GK manages real estate (or trust beneficiary interests in real estate) as its investment target, such activity does not constitute investment "principally in securities," and the GK may therefore manage the fund assets as self-management under the Special Business upon notification alone, without any registration.

Conversely, were a GK to operate a fund investing principally in listed equities or bonds, registration as an Investment Management Business would be required, and the Special Business exemption would be unavailable.