Monday, October 13, 2014

Basic Requirements and Facts for Japanese Companies

Company Name - Prior examination of a company name is not required, but an application to form a company with the same name and address with an existing company will be rejected. You can use alphabets, Arabic figures, Japanese Characters (Hiragana, Katakana, and Kanji), and some marks (symbols). The Japanese word to indicate a type of corporation should be included in the company name. For example, "ABC Kabushiki Kaisha".

Directors - Japan requires at least one director, with no upper limit of the number of maximum directors. A company cannot be a director. Only a natural person can be a director. Nationality is not a requirement. There are two types of directors.  One is director and the other is representative director.  A representative director is a director with representation right of the company and should be appointed from among directors. At least one representative director should reside in Japan. Board meeting for directors can be held anywhere in the world or at multiple places using telephone or video conference system, or even a unanimous written consent of directors can be a replacement for the board resolution if it is included in the Articles of Incorporation of the company. There is no need to have a board at a company. A company with a board should have at least three directors and one statutory auditor. In case of a company without board, there is no such requirement. One director is enough, and the regulations regarding the board meeting do not apply.

Shareholders - Any natural person, judicial person, or non-judicial organization of any nationality can be a shareholder, though those who are going to conduct a certain type of business (ex. defense industry, utility, etc.) or of a certain country should obtain a prior permission.  There are no lower and upper limit for the number of shareholders. Shareholder meetings can be held anywhere in the world or at multiple places using telephone or video conference system, or a unanimous written consent of shareholders can be a replacement for the resolution of meeting of shareholders.  In contrary to the board meeting, in case to hold a shareholders resolution in the form of unanimous written consent, it is not required to have a related clause in the Articles of Incorporation.

Company Secretary - Unlike many other countries, a Japanese company does not need to appoint a company secretary.  It is not in the Japanese legal system.

Share Capital - For Japanese companies, a shareholder is requested to invest at least one Japanese yen. If there is only one shareholder at a company, the minimum share capital is JPY1. If there are two shareholders, the minimum is JPY2. Sometimes, the minimum share capital is stipulated in laws other than the Companies Act. Ex. a company generally has to have at least JPY 5 million or more as the share capital, to apply for a Investor/Business Manager Visa. Share capital should be expressed in the Japanese yen but can be paid in foreign currencies or in the form of contributions in kind. The share capital in cash should be deposited at a Japanese bank account in case you incorporate a Kabushiki Kaisha (KK), but in case of a Godo Kaisha (GK, Japanese LLC), you do not need to use a Japanese bank.  You can just pay it to the representative of the company in cash.

Registered Address -  Japanese companies must supply a local Japanese address as their registered company address. Registered addresses cannot be a PO Box, they are required to be a physical address.

Public Information - The Japanese Companies Act requires that details about directors (representative directors should provide their personal addresses), auditors and other officers (if any) are public information. A Company must file details with the Legal Affairs Bureau in its district.  KKs and branches of foreign companies are required to supply the method of public notice (ex. announcements of financial results) in the company registry. Shareholders are not public information in the case of KKs.  On the other hand, operating members (=shareholders) in GKs (LLC) must disclose their names. Representative members of GKs must disclose their names and addresses.

Taxation - There are many kinds of taxes in Japan such as corporate tax, corporate resident tax, withholding tax, consumption tax and so on.  It would be better to consult an Japanese accountant before you start forming an entity or registering a branch in Japan.  One thing I would like to point out here is a company should pay corporate resident tax of JPY70,000 per year (the amount is for the company with the share capital below JPY 10 million), regardless of the profit you make in Japan.

Ongoing Compliance - Companies including branch offices or other entities in Japan are required to prepare and maintain accounts. Small companies do not need to undergo an audit on their accounts and operations.

Every company is required to file an annual tax return with the tax authorities (for a bigger company, more than once a year).  The commercial registration of a KK needs to be renewed at least once in ten years.  An annual general meeting must be held once a year, soon after the close of annual accounts. These two regulations do not apply to a GK.

Others - I wrote this article based on the regulations on Kabushiki Kaisha, the most common form of company in Japan.  Therefore, different rules apply to other entities such as Godo Kaisha (Japanese LLC)  or branch registration.  It is recommended to take a professional's advice before registering your company/branch in Japan.

*Requirement of residency of representative was abolished on March 16, 2015, and you no longer need to have a resident as representative of companies (KK/GK). However, you still need to appoint a resident representative if you register a branch office in Japan.

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