When a cofounder leaves a business, it can seem natural to say, “They should return the shares at the original subscription price,” or “The company can buy them back.” Yet leaving employment and owning shares are separate matters. Even an agreed price is not necessarily accepted as the value for tax purposes. Start by identifying the seller and buyer, then establish the valuation and after-tax proceeds appropriate to that transaction.

This article covers ordinary situations in which an individual founder resident in Japan disposes of shares in a Japanese unlisted stock company. Stock-option lapse and taxation on moving overseas are separate subjects.

1. Who will buy the departing founder's shares?

Resigning as a director or ending an employment relationship does not, by itself, automatically extinguish shares already owned. Even if the founders' agreement contains a buyback arrangement, establish who must acquire the shares, under what conditions and through which procedures. Transfers of restricted shares and a company's acquisition of its own shares are also subject to company-law rules. A lawyer should address contract validity, performance and disputes. Companies Act: share transfers and acquisitions of own shares

Switching to “the remaining founder's asset-holding company will buy because the founder lacks cash” can change both who pays tax and how it is calculated. Before substituting the buyer while leaving the price unchanged, compare each party's tax exposure and source of funds.

2. A low-priced sale between individuals can create gift tax for the buyer

Where an individual acquires property from another individual at a significantly low price, the difference between its value and the consideration may be treated as a gift. Cofounders being unrelated does not remove this issue. Nor does Japanese gift tax provide a general safe threshold of “at least half the value” for sales between individuals: whether a price is significantly low is judged on the particular facts. NTA: acquiring property from an individual at a significantly low price

For an ordinary share sale, the seller generally calculates gains by deducting acquisition cost, selling expenses and other applicable costs from proceeds. Unlisted shares generally fall within the category of general shares subject to separate self-assessed taxation. Gains and losses on listed and general shares are generally separate, so do not assume that realizing a listed-share loss will offset the gain. NTA: taxation of share disposals

3. A sale to another corporation can also trigger market-value taxation for the seller

When an individual transfers a capital-gains asset to a corporation for less than half its value, Article 59 of the Income Tax Act can require the seller to calculate the disposal as if it occurred at market value. Tax-recognized proceeds can therefore exceed the cash received, making the funding gap important. NTA: capital-gains assets and taxation

For example, assume a value of ¥10 million for this income-tax assessment, a sale price of ¥4 million, a ¥1 million acquisition cost and no selling expenses. The ¥4 million price is less than half the value. For an ordinary sale to a corporation other than the issuer, the seller's gain is generally based on ¥10 million minus ¥1 million, or ¥9 million. Budgeting only for the ¥3 million difference between the ¥4 million cash receipt and original cost can leave the seller short of tax funds.

Conversely, paying at least half the value does not resolve every tax issue. Transactions involving closely held companies may still be subject to the anti-avoidance rule for their acts or calculations, while income arising to the corporate buyer from a bargain acquisition must be assessed separately. Setting the contract price at exactly half the value is not a general tax-saving recommendation. NTA: Income Tax Basic Circular 59-3; National Tax Tribunal decision of May 21, 2002, concerning a bargain share acquisition

4. A company buyback can turn part of the price into a dividend

In a privately negotiated acquisition of its own shares, the issuing company's payment in excess of the tax capital amount attributable to those shares is generally treated as a deemed dividend. The remainder constitutes share disposal proceeds. Neither registered stated capital nor the departing founder's own acquisition cost can simply be substituted for the attributable tax capital amount. NTA: 2026 withholding guide, dividend income

Unlisted-share dividends are generally subject to aggregate taxation. For a domestic payment to a resident in 2026, the withholding rate is 20.42%, with no local-tax withholding. Withholding does not mean the final liability has been settled. In the illustration, the company would withhold ¥8 million × 20.42% = ¥1,633,600 and transfer ¥8,366,400 to the seller. The ultimate tax burden depends on other income, deductions and related factors. NTA: dividend withholding and taxation

A buyback does not eliminate the undervalue-transfer issue. Article 59 must also be considered; where it applies, the guidance calculates share disposal proceeds using market value less the deemed dividend. The example above assumes a market-value buyback and should not be carried over unchanged to a low-priced buyback. NTA: Special Taxation Measures circular 37-10/37-11 common provision 22

5. Review valuation and contract terms using the same information before signing

Being unlisted does not make shares worth ¥1, and accounting losses do not automatically make them worthless. Equally, if a recent VC round priced preferred shares at ¥100,000 each, the founder's common shares are not necessarily worth the same amount. Differences in dividend, liquidation and conversion rights require consideration. A financing price is important evidence, but it is not itself the conclusion of a tax valuation.

Gift-tax valuation of unlisted shares considers matters such as company size and shareholder classification. Valuation under Article 59 has additional modifications. Even for the same company, do not reuse “the value calculated by the tax adviser” without aligning the tax, parties and valuation date. NTA: valuation of unlisted shares; Income Tax Basic Circular 59-6

Gather the current shareholder register and voting rights, articles of incorporation, founders' and investment agreements, recent financial statements and financing documents, and payment records establishing the historical acquisition cost. For a company buyback, also obtain the tax capital amount and its allocation among share classes, the funding plan, and information needed to assess the distributable amount.

Ask a lawyer to review any sale obligation triggered by departure, price clauses, transfer approval and buyback procedures. The tax adviser can then evaluate the shares, each party's tax liability, withholding and net proceeds on those terms. Connecting the two before agreement, signing and payment allows tax analysis to inform the contract and reduces later corrections. Our Japanese domestic tax consultation service considers the identified buyer and proposed contract.

Kenji Yanagisawa, Certified Public Tax Accountant | Sources checked as of October 31, 2026. All numerical examples are hypothetical and do not guarantee a particular share value or tax amount. Nonresidents, relief for inherited shares and reorganizations require separate consideration.