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.

(Table 1-1) Legal differences between a branch and a subsidiary
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
  1. (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.

  2. *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.

  3. *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).

  4. *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)

(Table 1-2) Companies without nominating committee, etc. or audit and supervisory committee *1
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
  1. *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. *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).

  3. *3

    Companies subject to the Financial Instruments and Exchange Act must have one or more outside directors.

  4. *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)

(Table 1-3) Companies with a nominating committee, etc.*1
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. *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. *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. *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

(Table 1-4) Companies with audit and supervisory committee *1
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. *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. *2

    A majority must be outside directors. They do not have to be full time.

  3. *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).

Section1: Table of Contents


Section1: Reference

Section Documents The competent authorities relating to these documents
1-3 Industries in which prior notification is required before foreign direct investment in Japan International Department, Bank of JapanExternal site: a new window will open
(Japanese only)
1-3 Business Categories Subject to the Subsequent Report under the Ordinance concerning Foreign Direct Investment, etc. International Department, Bank of JapanExternal site: a new window will open
(Japanese only)
1-3 Listed countries
* Inward FDI from all other countries except the listed countries requires prior notification
International Department, Bank of JapanExternal site: a new window will open
(Japanese only)

Section1:Documents businesses are required to submit to authorities

Section Documents Where documents are listed within the URL The competent authorities and relevant web pages
1-2 Articles of Incorporation of Stock Company (Japanese sample only) [privately-owned, 1 or more directors, no board of directors, no auditor] (Japanese sample only)External site: a new window will open See "Examples of Articles of Incorporation"⇒"Articles of Incorporation of Stock Company"⇒"2. Small and Medium-Sized Company" [privately-owned, 3 or fewer directors, no board of directors, no auditor] Japan National Notaries AssociationExternal site: a new window will open
1-3 Report Relating to the Acquisition, etc. of Shares / Equity n.a. International Department, Bank of Japan
1-3 AffidavitExternal site: a new window will open 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 JusticeExternal site: a new window will open
1-3 Application Form for Registration of Incorporation of Stock CompanyExternal site: a new window will open 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 JusticeExternal site: a new window will open
1-3 Seal Registration FormExternal site: a new window will open 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 JusticeExternal site: a new window will open
1-3 Application for Registration of the Establishment of a Business Office of a Foreign CompanyExternal site: a new window will open 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 JusticeExternal site: a new window will open

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