COUNTRY
Japan
JAPAN COMPANY FORMATION
Japan is a dynamic and innovative country with a strong economy and a highly educated workforce. For entrepreneurs and international companies looking to expand into Asia, Japan is an attractive destination with a large domestic market and a strategic location for reaching other Asian markets.
Starting a company in Japan can be complex, requiring a thorough understanding of local regulations, business practices, and cultural norms. However, with the right guidance, the process can be straightforward, and the benefits of operating a business in Japan can be substantial.
Whether you are looking to start a new business or expand an existing one, this webpage provides valuable information on company formation in Japan, including the legal requirements, steps involved, and key considerations to keep in mind.
Japan is a global economic powerhouse, ranking as the third-largest economy in the world and offering political stability and a favourable business environment. In 2020, Japan was ranked 30th in the ease of doing business by the World Bank, making it an attractive destination for entrepreneurs and international companies looking to expand their operations.
The Japanese Companies Act provides a comprehensive framework for regulating business activities and companies, ensuring a transparent and streamlined process for forming a company in Japan. Whether you are starting a new business or expanding your existing operations, Japan offers numerous benefits and opportunities for growth.
If you are interested in exploring the possibilities of expanding to Japan, please reach out to us at enquiry@relinconsultants.com for more information and advice. Our team of experienced professionals is dedicated to helping businesses succeed in this dynamic and exciting market.
KEY REQUIREMENTS FOR INCORPORATING A JAPAN CORPORATION
TIMELINE OF FORMING COMPANY IN JAPAN
Shareholder and Shares
A Japanese corporation must have a minimum of one shareholder, with no maximum limit on the number of shareholders a company can have. A Godo Kaisha, also known as a Limited Liability Company, can register its name in English but must include the Japanese character “合同会社” at the end. Both individuals and other companies can serve as shareholders.
Share Capital
There are no minimum requirements for share capital or investment in setting up a company Godo Kaisha in Japan. Paid-up capital can be as low as JPY 1.
Directors
At least one director must be appointed for company formation, who can be of any nationality and residency. There are no residency requirements for directors in Japan.
Company Secretary
Appointing a company secretary is not mandatory for a Japanese Limited Liability Company.
Registered Office Address
It is one of the requirements for the formation of a company. A Japanese limited liability company must have a local registered office address within Japan. PO BOX addresses are generally not acceptable, but a consultant’s office address can be used as a registered office address.
TYPES OF BUSINESS ENTITIES IN JAPAN
Representative office (代表事務所, Dairei Jimusho)
A Representative office model is typically created to conduct supporting, planning, and organizing work in order to assist the foreign business in participating in a full-scale commercial operation in Japan.
The main function of this type of model is to conduct market research and liaison on behalf of the central or head foreign office. Commercial business activity is prohibited in Japan. Representative offices can only carry out activities that promote the endeavors of the foreign corporation, such as advertising and marketing, information sharing, market research, primary research, and other initiatives acquiring and preserving goods on behalf of the headquarters company overseas.
As such, there is no company tax imposed on the office under Japanese tax regulations.
Branch office (支店, Shiten)
Branch offices are usually chosen by foreign companies that seek to conduct commercial business activities in Japan. Unlike a representative office, a branch office lacks a distinct local legal corporation and falls under the corporate standing of the parent company outside of Japan.
Any obligations and credits created by the operations of the branch office in Japan ultimately belong to the parent business outside of Japan. Once a location and representative have been chosen and the necessary information has been registered, the branch office may start a business in Japan.
Limited Liability Company (Godo Kaisha, 合同会社)
The Godo Kaisha structure was introduced in 2016 and is ideal for small business owners who want legal protection for their personal assets. The registration process for a Godo Kaisha is comparatively easier and less costly than a Kabushi Kaisha. Godo Kaisha also has fewer requirements while offering limited liability protection to its shareholders. However, Godo Kaisha cannot be listed on the Japanese stock exchange.
Joint Stock Company (Kabushi Kaisha, 株式会社)
A Kabushi Kaisha protects its shareholders from personal liability and allows the entity to raise additional capital through listing, among other methods. The Kabushi Kaisha structure is more complex than the Godo Kaisha structure and involves more requirements and costs.
General Incorporated Association (一般社団法人, Ippan Shadan Hojin)
A General Incorporated Association is a non-profit legal entity in Japan, typically used for social welfare activities, culture and education, and similar purposes. It offers limited liability protection to its members and requires a minimum of three members to form.
General Partnership (一般共同経営, Ippan Kyodo Keiei)
A General Partnership is a business entity in Japan where two or more individuals engage in business together and share the profits and losses equally. It is simple to set up and there are no minimum capital requirements, but partners are personally liable for the business’s debts.
Limited Partnership (有限会社, Yugen Kaisha)
A Limited Partnership is a business entity in Japan where one or more partners (general Partners) manage the business and have unlimited liability while the other partners (Limited Partners) provide capital and have limited liability. Limited Partners are only responsible for the debts of the business up to the amount of their capital contribution.
Cooperative (協同組合, Kyodo Kumiai)
A Cooperative is a business entity in Japan owned and controlled by its members who use its services. It is usually established to promote the common economic interests of its members, who also share in the profits and losses of the business. It offers limited liability protection to its members.
STEPS TO INCORPORATE A COMPANY IN JAPAN
Pre Incorporation:
- Choose a Business Structure: The two main types of business structures in Japan are Godo Kaisha (Limited Liability Company) and Kabushiki Kaisha (Joint Stock Company).
- Select a Company Name: Choose a name that is not identical or similar to an existing company name, and ensure that it complies with the Japanese Companies Act.
- Prepare Incorporation Documents: Prepare the necessary documents including articles of incorporation, company bylaws, and a list of initial shareholders.
- Register with the Legal Affairs Bureau: Submit the incorporation documents and pay the relevant fees to the Legal Affairs Bureau.
Post Incorporation:
- Obtain Business Licences and Permits: Depending on your business type, you may need to obtain additional licences and permits.
- Register for Taxes: Register for Corporate Tax, Consumption Tax, and other relevant taxes.
- Open a Bank Account: Open a Japan corporate bank account for your business transactions.
- Hire Employees: Hire employees and comply with labour laws, including registering with the Employees’ Pension Insurance, Health Insurance, and Unemployment Insurance systems.
- Comply with Annual Requirements: File annual reports and comply with other Japan annual requirements, such as holding an annual general meeting.
PROS AND CONS OF REGISTRATION A COMPANY IN JAPAN
PROS
Strategically located
Japan is strategically positioned in the Asia Pacific region, leveraging its demographic and geographic advantages. The country is an archipelago, which results in a high number of ports that make it easy to manage import and export operations.
On average, it takes only 5 days to complete an import order and 10 days to complete an export order, making Japan’s supply chain operations faster than the average in developed countries.
Highly skilled labour
Japan places high value on education, resulting in a highly educated and skilled labor force. The country produces top-notch graduates who are competent, hardworking, and excel in their respective fields. This creates a competitive advantage for businesses looking to recruit and retain high-quality employees.
Reputable Jurisdiction
Japan is a well-regarded jurisdiction with a stable economy and a large market size for consumer goods and services. The country’s leadership in insolvency resolution, with a 90% recovery rate, demonstrates its commitment to stability and predictability in business operations.
CONS
Strict Regulations
Japan has a strict regulatory environment that foreign businesses need to comply with in order to establish their operations in the country. This can include various regulations such as labour laws, trade laws, and compliance with local standards.
The lack of knowledge of these regulations can lead to obstacles in the smooth operation of a business, and therefore, it is important for companies to have a proper understanding and a dedicated team to ensure compliance with local regulations.
English Language Barrier
One of the significant challenges faced by foreign businesses in Japan is the language barrier. Japanese is the dominant language in the country, and therefore, it’s crucial for foreign companies to have a good understanding of the language and have someone on the team who can communicate effectively in Japanese.
This will help in building relationships, networking, and conducting business successfully in Japan. The lack of proficiency in the language can lead to miscommunication, delays, and lost opportunities in the Japanese market.
FAQs
How much capital do you need to start a business in Japan?
The minimum paid-up capital required to start a business in Japan is JPY 1, but it is important to note that the actual cost of starting up a business may be significantly higher. This is because initial operating expenses, such as registration fees and government charges associated with company registration, can amount to around US$10,000 to US$12,000.
It is important to have a clear understanding of all expenses involved and to plan accordingly when starting a business in Japan.
Do you need a business licence in Japan?
Business licences are only applicable for selected industries. A company operating in the common sectors such as consulting are exempted from business licence requirements. You may reach out to our team for additional information.
How long does it take to register a company in Japan?
The time required for formation and incorporation of a company in Japan typically ranges from 1-2 months, subject to the completeness and accuracy of the submitted documentation, and the processing time of the relevant government agencies.
What is the best type of company which can be registered in Japan?
The best type of company that can be registered in Japan depends on the specific needs and goals of the business. Factors such as ownership structure, liability, and tax obligations need to be considered.
Some of the most commonly registered types of companies in Japan are the Kabushiki Kaisha (Japanese corporation). It’s best to consult with a consulting firm to assess further.
Do you need a business licence in Japan?
Business licences are only applicable for selected industries. A company operating in the common sectors such as consulting are exempted from business licence requirements. You may reach out to our team for additional information.
Is it possible to register an offshore company in Japan?
No, it is not possible to register an offshore company in Japan. Japan only allows for the registration of domestic companies within its jurisdiction.
Is it absolutely necessary to have a representative director in Japan?
While there is no legal requirement for a Japanese company to appoint a resident representative director, having one can be advantageous for several reasons. The resident representative director can assist at the time of formation of a company and facilitate the opening of a local bank account.
Additionally, having a resident representative can help to build credibility and ensure a local presence in Japan, which can be beneficial for business operations and expansion.
What are the required documents if the capital source is a foreigner or a foreign company?
The following documents are typically required when the capital source of a company registered in Japan is a foreign individual or a foreign company:
Proof of identity: passport or national ID card of the foreign investor
Proof of address: recent utility bill or bank statement to confirm the investor’s residential address
Japan Company Incorporation certificate and articles of incorporation of the foreign company, if the capital source is a foreign company
Business plan to set up a company in Japan, including details about the planned operations and market strategy
Proof of financial capability: financial statements or bank statements that demonstrate the investor’s ability to fund the company in Japan
Power of Attorney (POA) for the person authorized to represent the foreign investor during the company incorporation Japan process.
It is recommended to consult with a local accountant or lawyer to ensure the completion of all necessary requirements and the proper submission of all required documents.
Can I register my business on my home address in Japan?
In Japan, you are required to register your business at a physical address in Japan. This address will serve as your company’s official registered office address and must be accessible to the public. It is not possible to register your business at a residential address, such as your home.
You must obtain a commercial or office space for this purpose. Additionally, you may also consider using a virtual office service if you do not require a physical office space.
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