Incorporation in Japan: A Step-by-Step Guide
Incorporation in Japan: A Step-by-Step Guide
Incorporating a business in Japan is a significant step for foreign companies looking to establish a presence in one of the world's largest and most dynamic economies. Japan offers a stable business environment, advanced infrastructure, and a highly skilled workforce. However, the incorporation process involves navigating complex legal and regulatory requirements. This article provides a comprehensive guide to incorporating a business in Japan, outlining the key steps and considerations.
Type of Business Entry into Japan
There are three main types of foreign companies entering Japan
① Representative office
② Branch office
③ Subsidiary (Local subsidiary in Japan)
The differences between the three forms of advancement are explained below:
Representative offices are set up as a base for foreign companies to prepare in advance for full-fledged sales activities in Japan. Representative offices are permitted are mainly to limited to the following activities: 1) market research, 2) information gathering, 3) purchase of goods, 4) advertising and promotion, etc. Therefore, direct sales activities are prohibited. Because no business is conducted, registration for the establishment of a representative office as well as the notification to the tax office are not required.
However, as an exception, foreign banks, insurance companies, securities firms and other financial institutions must notify the Financial Services Agency in advance when establishing a representative office. This is because these industries operate separately and in accordance with the provisions of their respective sectors’ business laws, such as the Banking Act and the Financial Instruments and Exchange Act. In addition, representative offices that are not required to be registered cannot normally open bank accounts or lease real estate in the name of the representative office. Therefore, it is common for an individual, such as a representative of the head office or representative office of a foreign company, to act as an agent and be a party to the contract.
Branch offices are the most convenient way for foreign companies to establish a base for business activities in Japan. In order to begin operations, the branch must be registered after securing a base of operations as a branch and deciding on a representative for the branch. After registration, bank accounts can be opened in the name of the branch and property can be rented.
However, branch offices are not supposed to be solely responsible for decisions made by the foreign company. After all, branch offices are positioned as simply a base for carrying out operations in Japan as directed by the foreign company's decisions. As such, there is no branch-specific legal personality in law, but it is treated as a part of the legal personality of the foreign company. Therefore, in general, liability for claims and liabilities arising from the activities of the Japanese branch will ultimately be attributed directly to the foreign company.
Subsidiary（Local subsidiary in Japan）is a legal entity established under the Japanese Companies Act by registering it in accordance with the prescribed legal procedures. Two main forms of legal entities can be chosen: Joint stock company (Kabushiki-Kaisha/K.K.) or Limited liability company (Godo-Kaisha/G.K.). The Japanese subsidiary has a separate legal personality from the foreign company. Nevertheless, the foreign company will be liable for claims and liabilities arising from the activities of the subsidiary (Japanese subsidiary) as an investor as defined by law.
One major difference between a Joint stock company (K.K.) and a Limited liability company (G.K.) is that a Limited liability company has more freedom in setting up its articles of association than a Joint stock company. The former is not required to publish public notices of its accounts. As limited liability companies have no statutory provisions for the finalisation of annual financial statements, they are free to stipulate in their articles of association how the financial statements are to be prepared and approved.
Comparison of the three types of incorporation
Note: In principle, prior notification to the Bank of Japan at the time of inward investment is required for those operating in industries designated under the Foreign Exchange and Foreign Trade Act, etc., regardless of the type of base.
Steps to Incorporate a Company in Japan
1. Preliminary Preparations:
Choose the Business Structure: Decide on the type of entity that best suits your business needs.
Company Name: Select a unique company name and check its availability.
Registered Address: Secure a physical address in Japan for your company's registered office.
Directors and Shareholders: Determine the directors and shareholders. For a KK, at least one representative director must be a resident of Japan.
2. Drafting and Notarizing Articles of Incorporation:
Prepare the Articles of Incorporation, which outline the company’s basic details and structure.
Notarize the Articles of Incorporation. This step is required for KK but not for GK.
3. Capital Deposit:
Open a temporary bank account to deposit the initial capital.
Obtain a certificate of the deposit from the bank.
4. Registration with Legal Affairs Bureau:
Submit the required documents to the Legal Affairs Bureau, including:
Notarized Articles of Incorporation (for KK).
Capital deposit certificate.
Registration application form.
Personal seals and registration certificates of directors.
Pay the registration fee, which varies depending on the type of entity and capital amount.
5. Post-Registration Procedures:
Corporate Seal: Create and register the company’s seal, which is used for official documents.
Tax Registration: Register for taxes, including corporate tax, consumption tax, and social insurance.
Opening a Bank Account: Open a corporate bank account for business transactions.
Licenses and Permits: Obtain any necessary licenses or permits specific to your industry.
Incorporating a company in Japan involves several steps, each with its own timeline. Here’s a general time schedule for incorporating a company in Japan, specifically focusing on a Kabushiki Kaisha (KK), which is the most common form of corporation:
1. Preparation Phase (1-2 Weeks)
Consultation and Planning: Discuss the business plan, choose the company structure, and consult with legal and financial advisors.
Drafting Articles of Incorporation: Prepare the articles of incorporation and other required documents.
Notarization: For KK, the articles of incorporation must be notarized by a notary public.
2. Deposit Initial Capital (1-2 Days)
Opening a Bank Account: Open a temporary bank account in Japan (if applicable).
Capital Deposit: Deposit the initial capital into the bank account. Obtain a certificate of deposit from the bank. Technically, there is no minimum capital requirement for establishing a KK. You can incorporate a KK with as little as ¥1. However, having a higher capital amount is often advisable for credibility and operational needs.
3. Registration Phase (1-2 Weeks)
Company Registration: Submit the following documents to the Legal Affairs Bureau:
Articles of Incorporation
Certificate of initial capital deposit
Director's acceptance letter
Seal registration certificate (inkan)
Other necessary documents
Processing Time: The Legal Affairs Bureau typically takes about 1-2 weeks to process the registration.
4. Post-Registration Procedures (1-2 Weeks)
Notification to Tax Office: Notify the local tax office within two months of incorporation.
Notification to Local Government: Notify the local municipal office.
Opening Permanent Bank Account: Once the company is registered, open a permanent corporate bank account.
Company Seal Registration: Register the company seal (inkan) with the Legal Affairs Bureau.
Employment Insurance and Social Insurance Registration: If you have employees, register for employment and social insurance.
Total Time Frame: 4-6 Weeks
Detailed Timeline Breakdown
Week 1-2: Preparation Phase
Day 1-5: Consultation with advisors, choosing the company structure, and drafting the articles of incorporation.
Day 6-7: Notarization of the articles of incorporation.
Week 3: Deposit Initial Capital
Day 1-2: Open a temporary bank account and deposit initial capital.
Week 4-5: Registration Phase
Day 1-3: Submit registration documents to the Legal Affairs Bureau.
Day 4-14: Legal Affairs Bureau processes the registration.
Week 6: Post-Registration Procedures
Day 1-5: Notify tax office, local government, and open permanent bank account.
Day 6-7: Register company seal and employment/social insurance.
Notes:
Document Preparation: Ensuring all documents are correctly prepared can expedite the process.
Notarization: Notarizing the articles of incorporation can be done swiftly if planned in advance.
Legal Affairs Bureau Processing: Processing times can vary slightly depending on the bureau’s workload.
Post-Registration: Some notifications and registrations can be done simultaneously to save time.
Incorporating a company in Japan generally takes about 4-6 weeks, assuming all documents are in order and there are no significant delays in the process.
Legal and Regulatory Considerations
1. Corporate Governance:
Comply with Japanese corporate governance regulations, including holding regular board meetings and shareholder meetings.
Maintain accurate and transparent financial records.
2. Employment Laws:
Adhere to Japanese labor laws, which govern employment contracts, working hours, wages, and employee benefits.
Register employees with the social insurance system.
3. Intellectual Property:
Protect your intellectual property by registering trademarks, patents, and copyrights with the Japan Patent Office.
4. Compliance:
Stay informed about regulatory changes and ensure ongoing compliance with local laws and regulations.
Benefits of Incorporating in Japan
1. Market Access:
Gain access to a large and sophisticated consumer market with high purchasing power.
2. Business Environment:
Operate in a stable and transparent business environment with strong legal protections.
3. Strategic Location:
Benefit from Japan’s strategic location in Asia, facilitating access to other key markets in the region.
4. Skilled Workforce:
Leverage a highly educated and skilled workforce known for its productivity and innovation.
Conclusion
Incorporating a business in Japan requires careful planning and adherence to local legal requirements. By understanding the different types of business entities, following the necessary steps for incorporation, and staying compliant with Japanese regulations, foreign companies can successfully establish a strong presence in this vibrant market. With its numerous advantages, Japan offers significant opportunities for businesses looking to expand in Asia and beyond.