This article series will provide useful insights into the changing investment and innovation environment, and new business opportunities 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 or subsidiary company, and the legal differences between each of these are summarized in the following table.
| Subject matter | Branch office | Subsidiary company | |
|---|---|---|---|
|
Kabushiki-Kaisha (joint-stock corporation) |
Godo-Kaisha (limited liability company (LLC)) |
||
| Capital | No capital | 1 yen or more*1 | 1 yen or more*1 |
| Number of investors | — | 1 or more | 1 or more |
| Liability of equity participants/parent company toward creditors | Unlimited | 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 |
| Number of executives required |
Representative in Japan. 1 or more*2 |
See Tables 1-2, 1-3*2 |
No legally stipulated minimum. In principle, all members are executive officers, but may be stipulated otherwise in articles of association*2 |
| Legally stipulated term of office for executives | No legally stipulated term | See Tables 1-2, 1-3 | No legally stipulated term |
| Regular general meeting of shareholders (members) | Not required | In principle, must be held every year | Not required |
| Possibility of public offer of stock (equity participation share) | No equity participation share | 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*3 |
— (A joint-stock corporation may be reorganized into a limited liability company.) |
Possible |
| 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 |
| 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 |
-
(Note)
Regardless of the type of operation, filing prior notification of inward direct investment with the Bank of Japan is required as a general rule when conducting a business in an industry specified by the Foreign Exchange and Foreign Trade Act, etc.
-
*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
When a branch office is to be established in Japan, at least one representative must have an address in and be a resident in Japan.
Said address requirement does not apply to a representative director (or a representative executive officer) of a Kabushiki-Kaisha and a representative member (a person performing duties of such member, if such representative is a corporation) of a Godo-Kaisha (on and after March 16, 2015).
-
*3
See 1.7.1 "Closure of a branch office and resignation of all representatives in Japan".
Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)
| Subject matter |
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 all or part 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 all or part of issued shares) |
Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
|
| Number of Directors |
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 *2 |
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 *2 |
Appointment of 3 or more required*3 |
| Term of Directors |
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 *2 |
Appointment of 1 or more required. Executive officer with right of representation*2 |
Appointment possible if 2 or more directors appointed. Executive officer with right of representation *2 |
Appointment of 1 or more required. Executive officer with right of representation*2 |
| Number of Auditors |
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 of Auditors |
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 | ||
| Appointment of Accounting auditor | Appointment possible | Appointment necessary | ||
| Term of Accounting auditors | 1 year | |||
| Appointment of Accounting councilors*4 |
Appointment possible. However, 1 or more must be appointed if a board of directors is established and no auditor is appointed |
Appointment possible | ||
| Term of Accounting councilors*4 |
2 years in principle. Extendable up to 10 years |
2 years |
2 years in principle. Extendable up to 10 years |
2 years |
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*1
A “company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1, 2015). A "company with nominating committee, etc." used to be called a “company with committees” before the said revisions.
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*2
The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha (on and after March 16, 2015).
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*3
Companies subject to the Financial Instruments and Exchange Act must have one or more outside directors.
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*4
An accounting councilor 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)
| Subject matter |
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) |
|---|---|---|
|
(1)Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of all or part of issued shares) (2)Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
||
| Number of Directors | Appointment of 3 or more required | |
| Term of Directors | 1 year | |
| Board of directors (3 or more directors) | Establishment required | |
| Representative director | Appointment not possible | |
| Number of Executives |
Appointment of 1 or more required. Appointment of representative executive officer if 2 or more *2 |
|
| Term of Executives | 1 year | |
| Auditors | Appointment not possible | |
| Board of auditors (3 or more auditors) | Appointment not possible | |
| Appointment of Accounting auditor | Required | |
| Term of Accounting auditor | 1 year | |
| Accounting councilor Appointment | Possible | |
| Term of Accounting councilor | 1 year | |
| Auditors committee |
Establishment required (for auditing, etc. of performance of duties by executive officers). Consists of 3 or more directors, of which a majority must be outside directors*3 |
|
| 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 a majority must be outside directors*3 |
|
| Benefit committee |
Establishment required (to determine compensation of executive officers, etc.). Consists of 3 or more directors, of which a majority must be outside directors*3 |
|
-
*1
A “company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1, 2015).
A “company with nominating committee, etc.” used to be called a “company with committees” before the said revisions. -
*2
The requirement that at least one representative executive officer must be domiciled in Japan is no longer applied to Kabushiki-Kaisha (on and after March 16, 2015).
-
*3
Note that the requirements of outside directors have been altered by the enforcement of revisions to the Companies Act (enforced on May 1, 2015).
Comparison regarding directors of joint-stock corporations
| Subject matter |
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) |
|---|---|---|
|
(1)Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of all or part of issued shares) (2)Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) |
||
| Number of Directors (members of comm. of auditors, etc.) | Appointment of 3 or more required *2 | |
| Term of Directors (members of comm. of auditors, etc.) | 2 year | |
| Number of Directors (excl. members of comm. of auditors, etc.) | Appointment of 1 or more required. | |
| Term of Directors (excl. members of comm. of auditors, etc.) | 1 year | |
| Board of directors | Establishment required | |
| Representative director | Appointment required*3 | |
| Auditors | Appointment not possible | |
| Board of auditors | Appointment not possible | |
| Appointment of Accounting auditor | Required | |
| Term of Accounting auditor | 1 year | |
| Appointment of Accounting councilor | Possible | |
| Term of Accounting councilor | 1 year | |
| Auditors committee |
Establishment required (for audit, etc. of performance of duties by directors). Consists of 3 or more directors, a majority of which must be outside directors*2 |
|
-
*1
A “Company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1, 2015).
-
*2
A majority must be outside directors. They do not have to be full time. Note that the requirements for outside directors have changed with the implementation of the amendment to the Companies Act (effective May 1, 2015).
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*3
The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha (on and after March 16, 2015).
Laws and Regulations on Setting Up Business in Japan Pamphlet
The pamphlet "Laws & Regulations" is available in PDF, and outlines basic information about laws, regulations and procedures related to setting up a business in Japan. It is available in 8 languages (Japanese, English, German, French, Chinese (Simplified), Chinese (Traditional), Korean and Vietnamese).
You can download via the "Request Form" button below.
Section1: Notifications or reports regarding acquisition of stocks, equity, etc.
| Section | Industries or countries/regions subject to the regulations | The competent authorities relating to these documents |
|---|---|---|
| 1-3 |
Industries in which prior notification is required *Determined from the perspective of national security and public safety |
Ministry of Finance (Japanese only) |
| 1-3 |
Industries in which prior notification is required *Determined from the perspective of public order and the smooth operation of Japan's economy |
Ministry of Finance (Japanese only) |
| 1-3 | Business Categories Subject to the Subsequent Report under the Ordinance concerning Foreign Direct Investment, etc. |
Ministry of Finance (Japanese only) |
| 1-3 | Listed countries/regions that are not subject to prior notification when making inward direct investment |
International Department, Bank of Japan (Japanese only) |
Section1：Documents businesses are required to submit to authorities
| Section | Documents | Where documents are listed within the URL | The competent authority or relevant organization relating to each document |
|---|---|---|---|
| 1-2 |
Example 2 of Articles of Incorporation of Stock Company (Japanese sample only) *privately-owned, 1 or more directors, no board of directors, no auditor |
See Examples of Articles of Incorporation⇒Articles of Incorporation of Stock Company⇒2. Small and Medium-Sized Company |
Japan National Notaries Association (248KB)
|
| 1-2 |
Statement of Beneficial Owner(294KB)
|
Japan National Notaries Association(248KB)
|
|
| 1-3 | Report Relating to the Acquisition, etc. of Shares / Equity | International Department, Bank of Japan | |
| 1-3 |
Affidavit / Written Oath Statement
|
See "Registration Procedures of a Foreign Company" ⇒"[Example] Application Form for Registration of Establishment of Business Office for Foreign Company" p.12 |
Civil Affairs Bureau, Ministry of Justice
|
| 1-3 |
Application for Registration of Establishment of Stock Company
|
See Chapter 4-5. Matters to State⇒ "Application for Registration of Establishment of a Stock Company (Establishment of a Company without Board of Directors) Example of Description (PDF)" |
Civil Affairs Bureau, Ministry of Justice
|
| 1-3 |
Seal (Revision Mark) Form
|
See Chapter 4-5. Matters to State ⇒ "Application for Registration of Establishment of a Stock Company (Establishment of a Company without Board of Directors)"⇒ "Seal Registration Form Example of Description (PDF)" |
Civil Affairs Bureau, Ministry of Justice
|
| 1-3 |
Application Form for Registration of Establishment of Business Office for Foreign Company
|
See "Registration Procedures of a Foreign Company" ⇒"[Example] Application Form for Registration of Establishment of Business Office for Foreign Company" |
Civil Affairs Bureau, Ministry of Justice
|
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