by：Mai Miyamoto、Poom Kerdsang、Saiful Aziz
This is the first 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 under its name, any agreements for such purposes must instead be executed by the head office of the foreign company or by the representative of the representative office in an individual capacity.
B. Branch Office
Branch offices are established in order for a registered foreign company to carry out its sales activities in Japan. The Branch Office does not have a separate legal corporate status from its foreign company (head office); therefore, the foreign head office is ultimately responsible for all debts and credits generated by the activities of its Japanese branch office without any limits. Foreign companies wishing to set up a branch office in Japan must register its Branch Office in accordance with the Japanese Companies Act. A branch office can begin business operations as soon as an office location is secured, the branch office representative is determined, and all necessary information is registered.
A Japanese branch office can only provide services in Japan that have been decided and authorized by the head office, and it is not expected to engage in independent decision-making. A Japanese branch office may open local bank accounts and lease real estate under its name.
C. Subsidiary Company (Japanese Subsidiary)
Under the Japanese Companies Act, there are several “business vehicles” that a foreign company can establish for 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 Joint-stock corporation or a Limited Liability Company there are the most common type of “business vehicles” chosen by foreign companies looking to establish their presence in Japan. An Unlimited Partnership and Limited Partnership are rarely chosen in practice because the equity participants bear unlimited limited liability unlike those of the Joint-Stock Company or Limited Liability Company. All types of subsidiary companies can be established in Japan by completing the required procedures stipulated by law under the Companies Act.
It should be noted that a subsidiary is a separate entity from the foreign company (head quarter), so the foreign company will bear the liability for only up to the amount of assets it contributed to the subsidiary for all debts and credits generated by the activities of its 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”. However, practically, the Joint-Stock Corporations are perceived among Japanese business society to be more reliable and trustworthy than the Limited Liability Company due to its stricter procedures required for its incorporation and operation.
Summary
The following is the summary of some of the important characteristics of the types of business entities:
| Representative Office | Branch Office | Subsidiary Company (Japanese Subsidiary) |
|---|---|---|---|
Profitable Business Activities | Not possible | Possible | Possible |
Scope of | *Conduct market surveys ( | Business activities limited to what authorizes the headquarters and is not expected to engage in independent decision-making. | Unlimited |
Registration | Not necessary | Necessary Registration of establishment of branch office | Necessary |
Capital | Not necessary | Not necessary | *One (1) yen or more *Require five (5) million yen or more of capital for applying for a Business Manager Visa or Working Visa for foreign employees) |
Appointment of a responsible 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) director. |
Accounting process | Not necessary | The 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 the headquarters in the foreign country | Any name |
Opening a bank account for the company | Possible | Not possible* | Possible |
Employee | Employees are required to conclude an employment agreement directly with headquarters in the foreign country | Employees can conclude an employment agreement directly with their branch offices in Japan | Employees can conclude an employment agreement directly with their Japanese subsidiaries |
Acquiring Certificate of Qualification for Employment for foreign employee | Possible | ||
The time span for the establishment of the company | Incorporation procedures are easy, and procedure is minimal | Between 1 – 3 months depending on the how fast documentations are prepared. | Between 1 – 3 months depending on the how fast documentations are prepared. |
Please be informed that this article is merely for reference purposes, it is advisable to consult a legal professional to understand in detail the best option on which business entity would be suitable for the expansion of business in Japan.
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