Basic Legal Information on Japan – Types of Legal Business Entities in Japan
This is the third in a series of articles from GVA LPC providing basic legal information to foreign companies and individuals that are planning to do business in Japan. This series of articles will highlight Japanese laws and regulations which are central to their need to smoothen their business venture into the Japanese market.
Foreign business operators need to be well prepared for setting up their businesses in Japan. This article will briefly explain the types of business entities in Japan. The following are the type of legal business entities that a foreign business operator can consider when they want to expand this business in Japan.
A. Representative office
Representative offices are established for carrying out preparatory and supplemental tasks aimed at enabling foreign companies to engage in full-scale business operations in Japan. These offices may conduct market surveys, collect information or other activities, but they are not allowed to do business (engage in sales activities) in Japan. The establishment of representative offices does not require registration and paid-up capital. A representative office cannot open a bank account or lease real estate in its own name, there any agreements for such purposes must instead be executed by the head office of the foreign company or the representative at the representative office in an individual capacity.
B. Branch office
Branch offices are established for foreign companies to carry out their sales activities in Japan and does not have its own legal corporate status; therefore, the foreign company (head office) is ultimately responsible for all debts and credits generated by the activities of its Japanese branch office. Foreign companies wishing to set up a branch office in Japan must register in following the Japanese Companies Act. The branch office can begin business operations as soon as an office location is secured, the branch office representative determined, and the necessary information registered.
A Japanese branch office provides services in Japan that have been decided and authorized by the head office, and ordinarily is not expected to engage in independent decision making. A Japanese branch office may open local bank accounts and lease real estate in its own name.
C. Subsidiary company (Japanese Subsidiary)
Under the Japanese Companies Act, there are several “business vehicles” that a foreign company can establish in doing business in Japan; namely: (i) Joint-Stock Corporation (Kabushiki-Kaisha (K.K.), (ii) Limited Liability Company (Godo-Kaisha), (iii) Unlimited Partnerships (Gomei-Kaisha), and (iv) Limited Partnerships (Goshi-Kaisha).
In practice, a foreign tends to choose to establish a Joint-stock corporation or a Limited liability company as their “business vehicles”. Both Joint-Stock Corporation or Limited Liability Company are chosen in practice because foreign companies can prove the amount invested by foreigners easily, as the amount of stated capital of Joint-Stock Corporation (Kabushiki-Kaisha (K.K.)) or Limited Liability Company (Godo-Kaisha) are publicly announced in a register. As for Unlimited Partnerships and Limited Partnerships (Goshi-Kaisha), these types of “business vehicles” are rarely chosen in practice because equity participants bear unlimited rather than limited liability. All types of subsidiary companies can be established in Japan by completing the required procedures stipulated by law and then registering the corporation.
It should be noted that a subsidiary is a separate corporation from the foreign company, so the foreign company will bear the liability for only an equity participant stipulated by law for all debts and credits generated by the activities of the subsidiary. Joint-Stock Corporations and Limited Liability Companies are similar insofar as a liability in them is limited to the assets contributed by equity participants. Compared with Joint-Stock Corporations, however, Limited Liability Companies have greater freedom of self-government through their articles of association and, unlike joint-stock corporations, they may stipulate the procedures for preparing and approving their financial statements in their articles of association as there are no laws and regulations relating to finalizing annual financial statements and do not have to publish their financial results. Additionally, although their members are (by law) required to execute business, their articles of association may allow for the appointment of "managing partners".
The following are the summary on some of the important characteristics of the types of business entities:
|Representative Office||Branch Office||Subsidiary Company (Japanese Subsidiary)|
|Profitable business operations||Not possible||Possible||Possible|
Scope ofbusiness operation
*Conduct market surveys
*Purchase goods*Implement publicity/advertising efforts
|Provides services in Japan only which is decided upon by an organization authorized by the headquarters and is not expected to engage in independent decision making.||Unlimited|
NecessaryRegistration of establishment of branch office
|Capital||Not necessary||Not necessary||
*One (1) yen or more*Require five (5) million yen or more of capital for applying for “Business Manager Visa”)
|Appointment of a responsible and Board of directors||Necessary||Require registration of at least one (1) representative person in Japan (those who have an address in Japan)||Require registration of at least one (1) board of directors.|
|Accounting process||Not necessary||Accounting process will be handled by headquarters in the foreign country||Independent accounting by the Japanese subsidiary|
|Name of the company||Any name||The same company name as headquarters in the foreign country||Any name|
|Opening a bank account for the company||
PossibleAble to open the bank account under the name of headquarters of its foreign company or the representative officer in the representative office
Not possibleDepending on the financial institution, some branch offices may be refused to open their bank accounts
|Employee||Originally, the employee is required to conclude employment agreement directly with headquarters in the foreign country||The employee can conclude an employment agreement directly with their branch offices in Japan||The employee can conclude an employment agreement directly with their Japanese subsidiaries|
|Acquiring Certificate of Qualification for Employment for foreign employee||Possible||Possible||Possible|
|The time span for the establishment of the company||Incorporation procedures are not necessary||Between one (1) month and one and a half (1.5) months||Between one (1) month and one and a half (1.5) months|
Please be informed that this article is merely for reference purposes, it is advisable to consult a legal professional to understand in detail for the best option on which business entity would be suitable for the expansion of business in Japan.