Statutory definition

Neither “¥1 stock options” nor “share-based compensation stock options” appears in the Companies Act or tax law. The Companies Act prescribes “share acquisition rights,” and Article 236 specifies their terms.

“A stock company issuing shares listed on a financial instruments exchange prescribed in Article 2(16) of the Financial Instruments and Exchange Act need not include the matter in paragraph (1)(ii) in the terms of share acquisition rights issued in accordance with provisions on matters listed in Article 361(1)(iv) or (v)(b) established by the articles of incorporation or a shareholders' meeting resolution. ... That the rights are issued as directors' remuneration or in exchange for payment using such remuneration, and that exercise requires neither cash payment nor contribution of property under paragraph (1)(iii).”

Article 236(3) of the Companies Act thus provides a separate rule for listed companies issuing rights as directors' remuneration. In practice, “share-based compensation stock options” often refers to this mechanism. ¥1 stock options, with a nominal exercise price such as ¥1 per share, are a different method based on Article 236's general framework, available to listed and unlisted companies alike, under which the terms specify “the value of property contributed upon exercise or its calculation method.”

Overview

Why are there two separate statutory bases?

Issuance without payment under Companies Act Article 236(3) is limited to listed companies and requires compliance with resolutions on directors' remuneration. The general framework for a nominal exercise price, by contrast, applies to listed and unlisted companies and follows the subscription procedures in Article 238. That Article states: “Subscription requirements must be determined by a shareholders' meeting resolution.” Article 239, however, provides: “Notwithstanding paragraphs (2) and (4) of the preceding Article, a shareholders' meeting may by resolution delegate determination of subscription requirements to directors (or the board of directors for a company with a board).” For public companies, Article 240 provides: “Except in cases listed in the items of Article 238(3), in applying paragraph (2) of that Article to a public company, ‘shareholders' meeting’ shall be read as ‘board of directors.’”

How does this differ from delivery of shares without payment under Companies Act Articles 202-2 and 209?

The Companies Act also has separate special rules for delivering subscription shares—actual shares, rather than share acquisition rights—without payment. Article 202-2 permits listed companies issuing shares or disposing of treasury shares as directors' remuneration to specify that “the issue or disposal is as directors' remuneration ... and requires neither cash payment nor ... contribution of property in exchange for the subscription shares.” Article 209 accordingly provides: “Where matters listed in the items of Article 202-2(1) are stipulated under the latter part of that paragraph, subscribers become shareholders of the subscribed shares on the allotment date.” These special rules concern subscription shares and are limited to listed companies. Both the property involved and statutory basis differ from Article 236(3)'s similar rule for share acquisition rights and Article 236's general nominal-exercise-price framework.

How does this relate to tax-qualified stock option requirements?

Article 29-2 of the Act on Special Measures Concerning Taxation exempts economic benefits from acquiring shares through exercise of rights meeting certain requirements (“specified share acquisition rights”). One requirement is: “The exercise price per share must be at least the value per share, at the time the contract is concluded, of shares in the stock company that concluded the contract relating to those rights.” A nominal exercise price raises an issue under this requirement, separate from whether the rights themselves were issued without payment. Examining that relationship requires individual facts concerning valuation per share at the contract date.

How is income classified upon exercise?

Income Tax Basic Circular 23–35 Common-6 governs income classification upon exercise. Where rights arise from employment or a similar relationship, it states: “Where rights are found to have been granted by reason of an employment contract or similar relationship between the issuer and grantee, the income shall be employment income. However, ... where benefits are found mainly unrelated to performance of duties, it shall be miscellaneous income.” The circular's retirement-income provision concerns rights to acquire shares at a favorable payment amount, rather than share acquisition rights. Its inapplicability directly to share acquisition rights does not, however, mean that exercise gains on ¥1 options cannot be retirement income. Where they have the nature of a payment arising from retirement, Article 30 may classify them as retirement income. The National Tax Agency has also answered that retirement income applies to a case involving options granted instead of a retirement allowance, a ¥1 exercise price, and exercise in full within ten days beginning the day after retirement.

Issuer treatment and the difference from actual-share compensation

Issuer-side expense recognition and deductibility are governed by Corporation Tax Act Article 54-2 (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights) and Order Article 111-3 (Scope, etc. of restricted share acquisition rights), with Article 34's restrictions on deducting officers' remuneration also relevant. Details are discussed in Tax deductibility for the issuing company of stock options. The form delivering actual shares as officers' remuneration rather than share acquisition rights is called specified restricted shares (restricted stock), and differs in both name and statutory basis.

Points that require care in practice

• Where the exercise price is nominal or the rights are issued without payment, determining and documenting the “value per share at the time the contract is concluded” under Article 29-2 requires individual facts concerning the materials and valuation method used. For exercise-price calculation methods, see Stock Option Exercise Prices and Share Valuation will handle.
• Consider income classification of exercise gains. Employment-related benefits are generally employment income, but benefits paid by reason of retirement may be retirement income, while benefits mainly unrelated to duties also require consideration as miscellaneous income. Do not decide from the ¥1 exercise price alone; examine the grant circumstances, relationship to retirement benefits, and exercise restrictions contingent on retirement.
• The special rules for delivery of shares without payment under Companies Act Articles 202-2 and 209, and issuance of rights without payment under Article 236(3), are both limited to listed companies. The applicable procedure, including for unlisted companies, must be checked within the framework of Articles 238, 239 and 240.

Legal basis

• Companies Act, Article 236(3), introductory wording (Terms of share acquisition rights) / Quoted wording: “A stock company issuing shares listed on a financial instruments exchange prescribed in Article 2(16) of the Financial Instruments and Exchange Act need not include the matter in paragraph (1)(ii) in the terms of share acquisition rights issued in accordance with provisions on matters listed in Article 361(1)(iv) or (v)(b) established by the articles of incorporation or a shareholders' meeting resolution.”
• Companies Act, Article 236(3)(i) (Terms of share acquisition rights) / Quoted wording: “That the rights are issued as directors' remuneration or in exchange for payment using such remuneration, and that exercise requires neither cash payment nor contribution of property under paragraph (1)(iii).”
• Companies Act, Article 236(1)(ii) (Terms of share acquisition rights) / Quoted wording: “The value of property contributed upon exercise of the rights, or its calculation method.”
• Companies Act, Article 238(2) (Determination of subscription requirements) / Quoted wording: “Subscription requirements must be determined by a shareholders' meeting resolution.”
• Companies Act, Article 239(1) (Delegation of determination of subscription requirements) / Quoted wording: “Notwithstanding paragraphs (2) and (4) of the preceding Article, a shareholders' meeting may by resolution delegate determination of subscription requirements to directors (or the board of directors for a company with a board).”
• Companies Act, Article 240(1) (Special rules for determining subscription requirements in public companies) / Quoted wording: “Except in cases listed in the items of Article 238(3), in applying paragraph (2) of that Article to a public company, ‘shareholders' meeting’ shall be read as ‘board of directors.’”
• Companies Act, Article 361(1)(iv) (Directors' remuneration) / Quoted wording: “For remuneration consisting of the company's share acquisition rights offered for subscription (meaning those prescribed in Article 238(1); hereinafter the same in this paragraph and Article 409(3)), the maximum number of such rights and other matters prescribed by Ministry of Justice Order.”
• Companies Act, Article 202-2(1)(i) (Special rules for determining subscription requirements relating to directors' remuneration) / Quoted wording: “That the issue of shares or disposal of treasury shares relating to the subscription is as directors' remuneration (meaning remuneration prescribed in Article 361(1); the same applies in Article 236(3)(i)), and requires neither cash payment nor contribution of property under Article 199(1)(iii) in exchange for the subscription shares.”
• Article 209, Paragraph 4 of the Companies Act (Time of Becoming Shareholder, etc.) / Quoted text: "Notwithstanding the provisions of the first paragraph, if there is a provision on the matters listed in the items of Article 202-2, Paragraph 1 pursuant to the provisions of the second sentence of that paragraph, a subscriber for shares for subscription shall become a shareholder of the shares for subscription subscribed for by them on the allotment date."
• Article 29-2, Paragraph 1, Item 3 of the Act on Special Measures Concerning Taxation (Non-taxation, etc. of Economic Benefits Pertaining to Acquisition of Shares through Exercise of Stock Options Received by Specified Directors, etc.) / Cited wording: "The exercise price per share pertaining to the said stock option is equal to or higher than the amount equivalent to the value per share of the shares of the stock company that concluded the contract pertaining to the said stock option at the time of the conclusion of the said contract."
• Order for Enforcement of the Income Tax Act, Article 84(3)(iii) (Value of restricted shares, etc.) / Quoted wording: “Rights to acquire shares where the amount payable for the shares is favorable (excluding rights listed in the preceding two items).”
• Corporation Tax Act, Article 54-2(1) (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights) / Quoted wording: “Where a domestic corporation receives services from an individual and restricted share acquisition rights (meaning rights prescribed by Cabinet Order as subject to transfer restrictions or other conditions; hereinafter the same in this paragraph) meeting the following requirements (hereinafter ‘specified share acquisition rights’ in this Article) are delivered in respect of the service expenses ... this Act shall apply as if the services were received on the date an event occurs that gives rise, under the Income Tax Act or other income tax laws and regulations, to an amount to be treated as revenue or included in gross revenue for the individual's employment income or other income prescribed by Cabinet Order relating to those services ...”
• Article 111-3, Paragraph 1 of the Order for Enforcement of the Corporation Tax Act (Scope of Stock Acquisition Rights with Transfer Restrictions, etc.) / Quoted text: "The stock acquisition rights specified by Cabinet Order provided for in Article 54-2, Paragraph 1 of the Act (Special Provisions, etc., Concerning the Business Year of Attribution of Expenses with Stock Acquisition Rights as Consideration) shall be those subject to restrictions on the transfer of rights and other special conditions provided for in Article 84, Paragraph 3 of the Order for Enforcement of the Income Tax Act (Value of Shares with Transfer Restrictions, etc.)."
• Corporation Tax Act, Article 34(1)(ii)(c) (Nondeductibility of officers' remuneration) / Quoted wording: “The share acquisition rights must deliver shares with a market price upon exercise (limited to rights issued by the domestic corporation or a related corporation; referred to in the following item as ‘qualified share acquisition rights’).”

Relevant administrative guidance, Q&A, and cases

• Income Tax Basic Circular 23–35 Common-6 (Income classification where rights to acquire shares, etc. are granted) / Quoted wording: “Where the rights are found to have been granted by reason of an employment contract or similar relationship between the issuing corporation and the grantee: employment income. However, where exercise occurs after retirement and the benefits are found mainly unrelated to performance of duties—for example, rights granted to a person expected to retire shortly after grant that mainly provide benefits corresponding to share appreciation over a long period after retirement—the income shall be miscellaneous income.”

Additional Authorities and Sources

• National Tax Agency, “Tax Treatment of Share Acquisition Rights Issued by a Parent Company upon Abolition of an Officers' Retirement Allowance System” (Income Tax Act, Article 30(1); Basic Circular 30-1)
• Income Tax Act (e-Gov)

Sources checked September 7, 2026.