📖 Approx. 6 min
In the business succession and M&A of medical corporations, the “change of members” is an extremely important procedure for transferring control of the highest decision-making body. However, unlike the change of shareholders in general corporations, it is an area where practical stumbling blocks are likely to occur due to the complex interplay of medical corporation-specific laws, the presence or absence of equity, and administrative procedures. This article provides an expert explanation, from the definition of “members” in medical corporations to the specific steps for changing members, and the pitfalls in terms of taxation and licensing.
Definition of “Members” in Medical Corporations and Differences from Directors/Officers
In the Medical Care Act, “members” do not refer to general employees (practicing physicians or staff) but to the members who constitute the “General Meeting of Members,” the highest decision-making body of a medical corporation. While they have voting rights equivalent to shareholders in a stock company, a major characteristic is that the principle of “one vote per person” applies regardless of the amount of capital contribution (Article 48-2 of the Medical Care Act).
On the other hand, directors and auditors are “officers” responsible for daily business execution and audits. At the time of business succession, it is necessary to plan and proceed with the “change of members” to secure the voting rights of a majority or more than two-thirds of the General Meeting of Members, in addition to the change of the representative director (change of officers).
| Item | Members | Directors/Representative Director |
|---|---|---|
| Role | Members of the General Meeting of Members (exercise of voting rights) | Execution of corporate business and representation (officers) |
| Voting Rights | In principle, one vote per person (not proportional to capital contribution) | Voting rights in board meetings (one vote each) |
| Appointment/Resignation | Approval by the General Meeting of Members / Resignation procedures | Appointment by the General Meeting of Members / Mutual election of the representative director by the board of directors |
| Importance at Succession | Essential for grasping corporate control | Essential for inheriting medical practice and operational systems |
Basic Structure of Member Change in Medical Corporations with and without Equity
The practical structure associated with member changes varies significantly depending on the establishment period and form of the medical corporation (e.g., medical corporation with equity under transitional measures, medical corporation without equity, medical corporation with fund contributions).
In the case of a “medical corporation with equity under transitional measures,” the transfer of membership qualifications (change of members) and the transfer of equity (property rights) are legally distinct. Even if the General Meeting of Members approves the admission of new members, if it is not accompanied by a name change of the equity or a transfer agreement, the risk of future disputes over the valuation of the equity remains. On the other hand, in “medical corporations without equity (e.g., fund contribution type),” there is no concept of equity, so it is a pure change of membership qualification, but in some cases, adjustments to the conditions for fund repayment or the rights of contributors may be necessary. (※ This varies by case and requires individual confirmation.)
【Key Point】 Pay attention to the separation of equity and membership qualifications
In medical corporations with equity, the “transferee of equity” does not automatically become a “member.” Separate from the equity transfer agreement, voting rights as a new member cannot be exercised without passing a “resolution to approve admission” at the General Meeting of Members, making simultaneous procedures essential.
Specific Practical Procedures and Flow for Member and Officer Changes
To proceed smoothly with member changes, it is necessary to follow the proper procedures for holding the General Meeting of Members and the Board of Directors. The generally recommended practical steps are as follows:
- Convening Procedures and Agenda Setting for the General Meeting of Members: Decide on agenda items such as approval of resignation of outgoing members, approval of admission of new members, and approval of equity transfer (for corporations with equity).
- Holding and Resolution of the General Meeting of Members: Pass resolutions to approve the admission of new members and the resignation of outgoing members. Concurrently, appoint new directors.
- Execution of Equity Transfer Agreement and Payment of Consideration: For corporations with equity, conclude an equity transfer agreement between the outgoing member (equity holder) and the new member (transferee), and settle the transfer consideration.
- Holding of the Board of Directors Meeting (Mutual Election of Representative Director): Hold a meeting of the new board of directors and mutually elect and appoint the new representative director.
- Registration and Various Notifications to Administrative Authorities: Complete the registration of the change of representative director (within 2 weeks of finalization), notification of officer changes to the prefecture, and notification of changes to the health center, public health bureau, etc., in sequence.
Tax and Legal Pitfalls Likely to Arise During Member Changes
Cases are observed where unexpected taxation or legal troubles arise in conjunction with member changes and the transfer of equity.
✅ Tax and Legal Checklist for Member Changes
- ✅ Calculation of Equity Valuation: Have the hidden gains and accumulated net assets been accurately calculated based on the Basic Notice on Property Valuation? (Transactions at improper valuations may be subject to gift tax or capital gains tax).
- ✅ Appropriate Amount of Retirement Allowance and Deductibility for Tax Purposes: Is the retirement allowance for outgoing officers/members not unreasonably high, and have appropriate payment regulations and resolutions been passed?
- ✅ Procedural Requirements for Fund Repayment: For medical corporations with fund contributions, has the repayment exceeded the amount that can be returned after deducting statutory reserves, etc., from the net assets? (Provision of Article 56 of the Medical Care Act).
- ✅ Treatment of Local Taxes, Prefectural Inhabitant Tax, and Business Tax: Have the special conditions for the taxation classification of special corporate tax and business tax been met in conjunction with maintaining the medical corporation status or transitioning the management form?
Generally, the transfer of equity is subject to a tax of 20.315% (income tax, special reconstruction income tax, and resident tax) as “capital gains, etc., on stocks” under the Income Tax Act. If the valuation is set improperly, even if it is a transfer between individuals, it may be deemed a low-value transfer, leading to additional gift tax or capital gains tax assessments. Therefore, an appropriate valuation by a tax professional such as a tax accountant is essential. (※ Actual tax implications depend on the judgment of the individual tax office/tax accountant.)
Impact on Licenses, Facility Standards, and Regional Medical Care Planning
Changes in administrators (directors) and officers stemming from member changes directly affect medical fees and licenses.
When the director (administrator) changes due to business succession, a “Notification of Change in Clinic Establishment Matters” or an application for an establishment permit must be submitted to the public health center without delay. Furthermore, if the change procedures for “facility standards notification” are not properly carried out with the regional bureau of health and welfare, there is a risk that the basic medical fees and special additional fees for medical remuneration may temporarily become unclaimable.
Additionally, for the succession of hospitals and clinics with beds, consistency with the “Regional Medical Care Planning” bed function reporting and discussions at the Regional Medical Care Planning Coordination Council promoted by each prefecture will be questioned. Even when carrying out member changes and succession while maintaining the function of existing beds, consideration for the conversion plan of bed functions and the medical provision system in the region will be required. Therefore, it is recommended to consult with the administrative窓口 (prefectural medical guidance division or public health center) in advance and coordinate the submission schedule.
To Smoothly Proceed with Medical Corporation Member Changes
Changing members of a medical corporation is not merely a name-change procedure; it is a highly advanced practice that requires multifaceted knowledge, including management of voting rights at the General Meeting of Members, valuation of equity and transfer taxes, fund repayment, and even responses to facility standards and regional medical care planning. Defects in the procedures or compliance with laws and regulations for each step can lead to serious risks such as claims of invalidity of the transfer agreement, unexpected additional tax assessments, or suspension of medical fee calculations. Since the optimal scheme varies depending on the individual corporation’s articles of incorporation and asset status, formulating a plan with the advice of experts at an early stage is the key to success.
M&A Medical (operated by CentralMedience Inc.) is an M&A support institution certified by the Small and Medium Enterprise Agency, providing comprehensive support from the specific procedures for changing members of medical corporations to equity transfers, officer changes, and administrative responses, with an experienced team of specialists. Directors and clinic managers who are concerned about their own equity valuation or succession scheme are welcome to use our free consultation service.
Consultation on Medical Succession with M&A Medical
M&A Medical is a specialized M&A and business succession support service for medical institutions. As an M&A support institution certified by the Small and Medium Enterprise Agency, we support the successful transfer of clinics and medical corporations facing a lack of successors, as well as strategic acquisitions, on a success fee basis.
- Initial consultation and preliminary assessment are free
- No upfront fees or monthly charges (success fee only)
- Strict confidentiality (proceeding under NDA)
- Available nationwide in all 47 prefectures and for all medical specialties
Please consult with us early in the consideration stage, whether you just want to know the market price, have no successor, or are considering joining a group.