Investing in Japan
How to Set Up Business in Japan
Laws & Regulations on Setting Up Business in Japan
Section 1. Incorporating Your Business
1.2 Comparison of types of business operation
Foreign companies generally engage in business operations by establishing a branch office, subsidiary company, or limited liability partnership, and the legal differences between each of these are summarized in the following table.
| Branch office | Subsidiary company | Limited liability partnership (LLP) | ||
|---|---|---|---|---|
| Kabushiki-Kaisha (joint-stock corporation) |
Godo-Kaisha (limited liability company (LLC)) |
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| Capital | No capital | 1 yen or more(*1) | 1 yen or more(*1) | 2 yen or more (if 2 partners) |
| Number of investors | - | 1 or more | 1 or more | 2 or more(*3) |
| Liability of equity participants/parent company toward creditors | Unlimited | Limited to amount of equity participation | Limited to amount of equity participation | Limited to amount of equity participation |
| Transfer of equity participation share | No equity participation share | May be transferred freely in principle.May be stipulated in articles of incorporation that approval of Board of Directors is needed for transfer of shares. | Unanimous approval of equity participants (members) required | Unanimous approval of partners required |
| Number of executives required | Representative in Japan. 1 or more(*2) |
See Tables 1-2, 1-3 | No legally stipulated minimum. In principle, all members are executive officers, but a representative member may be appointed(*2). |
No legally stipulated minimum. All partners are executive officers(*3). |
| Legally stipulated term of office for executives | No legally stipulated term | See Tables 1-2, 1-3 | No legally stipulated term | No legally stipulated term |
| Regular general meeting of shareholders (members) | Not required | In principle, must be held every year | Not required | Not required |
| Possibility of public offer of stock (equity participation share) | No equity participation share | Possible | Not possible | Not possible |
| Possibility of reorganization into joint-stock corporation | Not possible. Need to separately close branch office and register resignation of all representatives in Japan, and establish joint-stock corporation(*4) | - (A joint-stock corporation may be reorganized into a limited liability company.) |
Possible | Not possible.Need to separately dissolve partnership and establish joint-stock corporation(*5) |
| Distribution of profits and losses | - | Allocated according to equity participation ratio | May be allocated at a different rate from equity participation rate if specified in articles of association | May be freely allocated with the unanimous approval of partners |
| Taxation of profits | Income arising within Japan is in principle taxed | Taxed according to profits of joint-stock corporation and profits allocated to shareholders | Taxed according to profits of Godo-Kaisha and profits allocated to participants | No taxation of partnerships themselves. Taxation of profits allocated to partners |
(Note) Regardless of the type of operation, prior notification must be filed with the Bank of Japan if establishing an operation in an industry in which the Foreign Exchange and Foreign Trade Act requires that such notification be filed when making an inward direct investment.
(*1) Although establishment with capital of zero yen is theoretically possible, approval is granted ex post facto, and it is not in practice possible to incorporate a company without paying in capital.
(*2) At least one representative must have an address in and be resident in Japan.
(*3) One or more partner must be an individual who has an address in and is resident in Japan for more than 1 year, or a Japanese corporation.
(*4) See 1.6.1 "Closure of a branch office and resignation of all representatives in Japan".
(*5) See 1.6.3 "Dissolution and liquidation of limited liability partnerships".
Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)
(if no committee is established)
| Small and medium companies (joint-stock corporations with capital of less than 500 million yen and total liabilities of less than 20 billion yen) |
Large companies (joint stock corporations with capital of 500 million yen or more or total liabilities of 20 billion yen or more) |
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|---|---|---|---|---|---|
| Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) |
Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) |
Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
||
| Directors | No. | Appointment of 1 or more required. Representative director with right to execute business. If no representative director is appointed, executive officers each have the right of representation(*1). |
Appointment of 3 or more required | Appointment of 1 or more required. Representative director with right to execute business. If no representative director is appointed, executive officers each have the right of representation(*1). |
Appointment of 3 or more required |
| Term | 1 to 10 years. Extendable up to 10 years. |
2 years | 1 to 10 years. Extendable up to 10 years. |
2 years | |
| Board of directors (3 directors or more) |
Establishment optional. Establishment required if board of auditors is established. | Establishment required | Establishment optional. Establishment required if board of auditors is established. | Establishment required | |
| Representative director(s) | Appointment possible if 2 or more directors appointed. Executive officer with right of representation(*1). | Appointment of 1 or more required. Executive officer with right of representation(*1). |
Appointment possible if 2 or more directors appointed. Executive officer with right of representation(*1). | Appointment of 1 or more required. Executive officer with right of representation(*1). |
|
| Executive officers | Appointment not possible | ||||
| Auditors | No. | 1 or more may be appointed.However, appointment of 1 or more is required if a board of directors is established and no accounting counselor is appointed | Appointment of 1 or more required | Appointment of 3 or more required | |
| Term | 4 years in principle. Extendable up to 10 years. |
4 years | 4 years in principle. Extendable up to 10 years. |
4 years | |
| Board of auditors (3 or more auditors) |
Establishment possible | Establishment required | |||
| Accounting auditor | Appointment | Appointment possible | Appointment necessary | ||
| Term | 1 year | ||||
| Accounting councilor(*2) | Appointment | Appointment possible. However, 1 or more must be appointed if a board of directors is established and no auditor is appointed. |
Appointment possible | ||
| Term | 2 years in principle. Extendable up to 10 years. |
2 years | 2 years in principle. Extendable up to 10 years. |
2 years | |
(*1) At least one director with the right of representation must have an address in and reside in Japan.
(*2) An agent of a company newly established under the Companies Act who must be a certified public tax attorney or certified public accountant. An auditing councilor prepares financial documents in association with the directors, and may not hold another position as well, such as director, auditor, or accounting auditor.
Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)
(if a committee is established)
| Small and medium companies (joint-stock corporations with capital of less than 500 million yen and total liabilities of less than 20 billion yen) |
Large companies (joint stock corporations with capital of 500 million yen or more or total liabilities of 20 billion yen or more) |
||||
|---|---|---|---|---|---|
| Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) |
Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) |
Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
||
| Directors | No. | Appointment of 3 or more required | |||
| Term | 1 year | ||||
| Board of directors (3 or more directors) |
Establishment required | ||||
| Representative director | Appointment not possible | ||||
| Executive | No. | Appointment of 1 or more required. Appointment of representative executive officer if 2 or more(*). |
|||
| Term | 1 year | ||||
| Auditors | Appointment not possible | ||||
| Board of auditors (3 or more auditors) |
Appointment not possible | ||||
| Accounting auditor | Appointment | Required | |||
| Term | 1 year | ||||
| Accounting councilor | Appointment | Possible (prepares financial statements in collaboration with directors) | |||
| Term | 1 year | ||||
| Auditors committee | Establishment required (for auditing, etc. of performance of duties by executive officers). Consists of 3 or more directors, of which at least half must be outside directors. |
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| Nominating committee | Establishment required (to decide on proposed appointment and dismissal of directors for submission to the general meeting of shareholders). Consists of 3 or more directors, of which at least half must be outside directors. |
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| Benefit committee | Establishment required (to determine compensation of executive officers, etc.). Consists of 3 or more directors, of which at least half must be outside directors. |
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(*) At least 1 executive officer with the right of representation must have an address in and reside in Japan.
- 1.1 Types of operation in Japan
- 1.2 Comparison of types of business operation
- 1.3 Procedures for registering establishment
- 1.4 Information listed in articles of incorporation
