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invest japan

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.

Table 1-1
  Branch office Subsidiary company Limited liability partnership (LLP)
Kabushiki-Kaisha
(joint-stock
corporation)
Godo-Kaisha
(limited liability company (LLC))
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)

Table 1-2
  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 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)

Table 1-3
  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.
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.
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.

(*) At least 1 executive officer with the right of representation must have an address in and reside in Japan.


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