Outline
Foreigner Choosing the Right Types of Business in Japan: Start A Business with Company Registration
Dreaming of scaling your business in Japan and conquering the lucrative Japanese market? Before diving headfirst, in the first place, understanding the intricacies of establishing a presence and the different types of business in Japan is crucial. This guide serves as your navigation map, meticulously outlining the three primary models – representative offices, branch offices, and subsidiaries. We’ll delve into their distinct characteristics, unveiling their strengths and limitations, so you can make an informed decision aligned with your unique business goals, financial muscle, and risk tolerance before choosing the type of business in Japan or investing in Japan.
Register Different Types of Business Entity in Japan
According to the Companies Act of Japan, Article 818; foreign companies seeking to register a type of business in Japan must be registered in the country. You can do this through 4 methods. Namely, by appointment of a representative in Japan, establishing a branch, through a Japanese company, or through a partnership.
To begin with, the following are the main types of operations that foreign entities can establish in Japan when looking for business opportunities:
- Representative office: Using foreign company name
- Branch: Using foreign company name with (Japan)
- Subsidiary: Kabushiki-Kaisha (joint-stock corporation) or Godo-Kaisha (“small exempt” limited liability company)
- Partnerships: Gomei-Kaisha (unlimited partnership) or Goshi-Kaisha (limited partnerships)
Start A Representative office in Japan
This is the simplest and most limited form of operation. To explain, representative offices cannot engage in commercial activities; in this situation, they can conduct market research, collect information, and promote products or services.
Representative offices in Japan act as launchpads for foreign entities, paving the way for full-fledged formations. After all, these offices gather intel, conduct market research, buy goods, and even raise brand awareness through marketing and advertising. Just remember, direct sales are off-limits.
Registering a representative office is effortless, requiring no official registration. On the negative side, they do have major limitations: no independent bank accounts or property leases, so agreements for such purposes must instead be signed by the head office of the foreign entity or the representative at the representative office in an individual capacity.
In brief, while representative offices are cost-effective and flexible for initial market exploration, they lack the legal and financial muscle for direct profit generation within Japan.
Advantages of a Representative Office in Japan:
- Fast and Easy Setup because it requires little paperwork and registration, allowing you to establish a presence quickly.
- Limited Activities because it can conduct market research, gather information, promote, and purchase goods and services, providing valuable insights before committing to larger investments.
- Low Costs: Low setup and maintenance costs.
Disadvantages of a Representative Office in Japan:
- Limited Scope because it cannot engage in commercial activities in Japan like sales, generating revenue, or signing contracts.
- No Independent Legal Status because it is not a separate legal entity, meaning the parent company is liable for all its activities.
- Limited Bank Accounts and Leases because it cannot open bank accounts or lease property in its own name, requiring agreements with the parent company.
- Risk of Misrepresentation because of the potential for misunderstandings due to the limited nature of the office’s activities.
Establish A Branch office: Expanding, but Not Entirely Independent
A Japanese branch is a facility that a foreign entity establishes in Japan to provide services, typically without autonomy in decision-making. In other words, it does not have a separate legal identity. Instead, it is considered part of the foreign entity. As a result, the foreign entity is liable for any financial obligations incurred by its establishment of a branch. Even so, the branch can still open bank accounts and lease property in its name.
Advantages of a Branch Office in Japan:
- Fast Setup since after you secure an office, appoint a representative and register key information to begin operations swiftly.
- Separate Finances because while legally tied to the parent company, the branch can open bank accounts and lease property in its own name.
Disadvantages of a Branch Office in Japan:
- Restrictions on Activities because branches generally lack the freedom to engage in independent decision-making or deviate from pre-determined activities as approval for any decisions must be received from the parent company such as providing services in Japan.
- Tax Implications because profits generated by the branch are taxed by the Japanese government, impacting overall financial planning.
Incorporation of A Subsidiary
Establishing a subsidiary involves following necessary legal procedures and registration. It is important to realize, the subsidiary is a separate legal entity, meaning the foreign company holds the liability of an investor for its debts and activities. On the other hand, alternative investment methods utilizing Japanese companies include joint ventures and equity participation in existing types of business.
Foreign entities establishing a subsidiary in Japan must choose between company types as defined by the Companies Act including:
- Kabushiki-Kaisha (joint-stock corporation) and
- Godo-Kaisha (“small exempt” limited liability company).
Other legal forms are partnership types that technically qualify in the Companies Act, but be that as it may, they’re rarely chosen in practice due to unlimited liability risks for participants. These include:
- Gomei-Kaisha (unlimited partnership) and
- Goshi-Kaisha (limited partnerships).
Both Kabushiki-Kaisha (joint-stock corporation) and Godo-Kaisha (“small exempt” limited liability company) are the more popular options as they have the advantage of limited liability, which means that stakeholders’ responsibility is limited to the assets they contribute. Their liabilities do not go beyond the amount that they have pledged.
In fact, Godo-Kaisha (“small exempt” limited liability company) has more freedom in governing themselves through their articles of association. Unlike Kabushiki-Kaisha (joint-stock corporation), they can specify the procedures for preparing and approving financial statements in their articles of association. They do not need to follow specific laws and regulations to finalize annual financial statements or disclose their financial results. In general, while members of a Godo-Kaisha (“small exempt” limited liability company) are typically required to be directly involved in this type of business, they may appoint managing partners according to their articles of association.
In the long run, establishing a subsidiary offers foreign companies a more permanent and independent presence compared to simpler options like representative offices.
Advantages of a subsidiary in Japan:
- Limited Liability: The parent company’s liability is limited to the investment in the subsidiary, protecting its other assets.
- Independent Legal Entity: Subsidiaries operate as separate legal entities, offering greater flexibility and control over their own operations. Subsidiaries wield more power compared to representatives and branches which have limited powers.
- Japanese Tax Benefits: Due to Potential access to tax advantages specific to Japanese subsidiaries.
- Long-Term Commitment: Signals serious commitment to the Japanese market, potentially improving market perception and partnerships with other Japanese corporations.
- Diversification: Allows for the diversification of investments and potentially mitigates risk for the parent company.
Disadvantages of a subsidiary in Japan:
- Comprehensive Setup: Incorporating a subsidiary requires more procedures as local laws must comply but it protects all parties through established legal and administrative procedures for optimal efficiency in the local market.
- Higher Initial Costs for Long-Term Efficiency: While the initial setup incurs costs, subsidiaries can streamline operations and reduce overall expenses in the long run
- Tailored Management Demands: It requires establishing a separate management structure and operational expertise to ensure the subsidiary thrives in its unique market and regulatory environment
Comparison of Types of Companies In Japan: Company Registration in Japan
| Subject Matter | Branch |
Subsidiary Kabushiki-Kaisha (KK or Joint-Stock Corporation) |
Subsidiary
Godo-Kaisha (GK or “Small Exempt” Limited Liability Company) |
|---|---|---|---|
| Capital | No capital is required | 1 yen or more | 1 yen or more |
| Number of Investors | – | 1 or more | 1 or more |
| Liability of Equity Participants/Parent Company towards 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. The articles of incorporation may stipulate that the Board of Directors needs to approve the transfer of shares. |
Unanimous approval of equity participants (members) required |
| Number of executives required | At least one representative director must have an address in and be a resident in Japan. | Appointment of 1 or more is required. Representative director with the right to execute business. If no representative director is appointed, each executive officer has the right of representation |
No legally stipulated minimum. In principle, all members are executive officers but may be stipulated otherwise in articles of association |
| Legally stipulated term of office for executives | No legally stipulated term | 1-10 years but extendable up to 10 years | 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 limited liability company |
Not possible. Need to separately close branch offices and register the resignation of all representatives in Japan, and establish a joint-stock corporation |
–
(A limited liability company may be reorganized into a limited liability company.) |
Possible |
| Distribution of profits and losses | – | Allocated according to the equity participation ratio | May be allocated at a different rate from the 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 limited liability company and profits allocated to shareholders | Taxed according to profits of Godo-Kaisha (“small exempt” limited liability company) and profits allocated to participants |
Conclusion
Japan offers a variety of types of companies in Japan, including Kabushiki-Kaisha (joint-stock corporation) and Godo-Kaisha (“small exempt” limited liability company). Company registration in Japan involves choosing a company name, setting up the types of business entities in Japan, and getting a bank account in Japan.
Luma Insight provides valuable resources on establishing your company in Japan and how to properly structure your types of business and ensure that your new business is on the right track. Just keep in mind that as a foreign company, you’ll bear the responsibility of adhering to Japan’s business regulations and laws.
Once you’ve successfully gone through the steps of registration in Japan and have your Japan company up and running, the possibilities for a good business in Japan can take off. If you find yourself needing a business manager visa to oversee your operations, we can assist with that too. So go ahead and take the leap to start a business in Japan – the opportunities are waiting for you!
Frequently Asked Questions
Q: What are the different types of companies?
A: In Japan, there are several types of companies you can choose from, such as Kabushiki-Kaisha (joint-stock corporation) and Godo-Kaisha (“small exempt” limited liability company).
Q: How can I set up different types of business in Japan as a foreigner?
A: As a foreigner, you can start by incorporating your business in Japan either by establishing a branch or by forming a new company.
Q: Can a company from outside Japan establish local offices near the main business cities?
A: Yes, companies can set up local offices near major cities in Japan to facilitate their operations and access to clients and partners.
Q: What are the costs associated with setting up different types of business in Japan?
A: The costs in Japan may vary depending on the type of company you choose to establish and the services you require.
Q: Are there any restrictions on foreign companies setting up types of business operations in Japan?
A: Foreign companies looking to establish a presence or begin operations in Japan must comply with certain regulations and practices. This includes having at least one resident of Japan as a representative director.
Q: What are the key matters to state when incorporating a company in Japan?
A: When incorporating a company, you will need to state information about the shareholders, directors, business activities, and the initial capital amount, among other details.
Q: How do I choose the right types of business entity for setting up a company in Japan?
A: You can choose the right business entity by considering factors such as the type of business activities you plan to undertake and the level of liability you are comfortable with.
Q: What is the most widely known and credible type of company structure in Japan?
A: Establishing a subsidiary such as Kabushiki-Kaisha (joint-stock corporation) or Godo-Kaisha (“small exempt” limited liability company) is one of the most common method and credible types of company structures in Japan.
Q: What are the major differences between Kabushiki-Kaisha (joint-stock corporation) and Godo-Kaisha (“small exempt” limited liability company) in Japan?
A: The main difference lies in the structure and requirements. Kabushiki-Kaisha (joint-stock corporation) is a joint stock company with shareholders, while Godo-Kaisha (“small exempt” limited liability company) is a limited liability partnership with no shareholders.
Q: What are the key benefits of incorporating a subsidiary in Japan?
A: Access the world’s 3rd largest economy, tap into a highly skilled talent pool, establish brand presence, leverage favorable tax incentives, and benefit from the government support programs.
Q: How can a subsidiary help my business grow in Japan?
A: Localized decision-making, faster response to market changes, deeper understanding of customer preferences, compliance with local regulations, and enhanced brand trust.
Q: Why is a separate legal entity important?
A: It shields the parent company from local liabilities while offering greater financial protection and enables independent decision-making and faster response to market changes.
Q: What opportunities does a subsidiary offer?
A: It provides an easier access to local funding, partnerships, and government grants as well as greater flexibility to engage in a wider range of business activities.
Q: Is a subsidiary a good option for long-term growth?
A: It provides a solid foundation for future expansion and adaptation to market changes. A subsidiary is also able to attract and retain top local talents, while fostering a dedicated and knowledgeable team.
Q: What are the limitations of branches and representative offices?
A: Unlike incorporating a subsidiary, branches and representative offices have limited legal and financial autonomy, often restricted to liaison and promotional activities.
