Business entities in Japan
There are several types of businesses entities available to start a business in Japan. Please find below more details what is required to form each of them and the business needs they enable our Clients to meet. Kindly contact Healy Consultants if you wish additional information on doing business in Japan.
Doing business in Japan with a local entity
The Japanese limited liability company (Godo Kaisha)
- A Japanese limited liability can be registered by only one shareholder, who can be a foreigner. Our Clients living outside of Japan are however required to appoint one director ordinarily resident in the country and they usually use our nominee services to comply with this Government rule. The minimum investment to form the company is only US$1 (JPY1), the Japanese Government requires to increase this share capital to JPY3 million (US$39,000) within five years of incorporation;
- The setup of a LLC in Japan can take at least one month, notably due to the need to find physical office space and submit evidence of the same to the Japanese Company Registrar. Our Clients willing to relocate to Japan should also expect it will take approximately three months for the Government to review their work permit application following formation of their company in Japan;
- One year after their formation, all Japanese entities are required to prepare and submit their financial statements to the Japanese tax authority. Japanese LLCs however benefit from an audit exception provided their issued capital is below US$4.5 million;
- Best uses for a Japanese limited liability company: thanks to limited setup requirements, the Japanese limited liability can be used to conduct most types of businesses activities in Japan. It is the optimal type of business entity for most of our Clients willing to do business in this country.
The Japanese free zone company
- While this has become uncommon due to rising operational costs in Japan, it is still possible to register an export oriented manufacturing business in one of Japan free trade zone, the most famous being the Okinawa free zone. Our Clients interested by such option usually register a limited liability company with a paid-up capital (at least US$50,000) sufficiently high to meet the requirements of the free zone authority;
- Best uses for a Japanese free zone company: the Okinawa free zone is usually used for logistic businesses re-exporting their production to other Asian countries.
The Japanese joint stock corporation (Kabushiki Kaisha)
- Japanese joint stock companies are essentially the same type of business entity as a limited liability company. They require the same amount of paid-up capital (JPY1) upon incorporation and can also be formed by foreigners, provided one resident director is appointed;
- Unlike most other countries, Japanese joint stock corporations are not subject to audit requirements, provided they meet all the following conditions i) they are not listed on a stock exchange ii) they have less than three directors (no Director Board) and iii) their issued capital is below US$4.5 million and iv) their M&AA explicitly includes some restrictions over the power of shareholders to transfer freely shares. These exempt joint stock companies are known locally as Kabushiki Joto Seigen Kaisha, alias a closed JSC;
- Best use for a Japanese joint stock corporation: forming a Japanese joint stock corporation is usually done when the company owners are planning to finance their business by raising capital on the Tokyo Stock Exchange or by issuing shares to third party investors which may be more comfortable with a company having: i) a Board including independent members and ii) an obligation to go through an audit (automatically triggered when there are three directors sitting on the Board).
The Japanese limited liability partnership
- Foreigners can register a limited liability partnership, with no minimum capital requirement. At least of the partners must be ordinarily resident in Japan. All partners can benefit from limited liability against the business’s operations;
- The partnership is a tax transparent entity, meaning that earning are deemed automatically distributed to the partners and must be included in their personal/corporate income tax statements. Financial statements must however be prepared by the partnership.
- Best uses for a Japanese limited liability partnership: the LLP is a good entity for our Clients who already have a partner in Japan.
Doing business in Japan with a foreign entity
The Japanese branch office
- Japanese regulations allow foreign companies to register a branch of their business in Japan. The scope of operations of the entity is usually dependent of the M&AA of the foreign company, which notably means that a branch is only allowed to have activities corresponding to those of its “parent” company. Branches are also required to appoint a resident representative in Japan;
- Best uses for a branch: registering a branch instead of a separate subsidiary enables our Client to minimize accounting and bookkeeping obligations, as the accounts of the head office and the branch will be the same. It is also a good business entity when our Clients plans to provide products or services subject to a licensing requirement with a high amount of capital required. Our Clients should however be cautious when opting for a branch, as their foreign company will bear unlimited liability for the debts and losses of the Japanese branch.
The Japan representative office
- Representative offices are only allowed to engage in i) market research and ii) promoting the business of the parent company. The representative office will not be allowed to open a bank account in Japan, so most of our Clients ask our Firm to provide their representative in Japan with a personal bank account;
- Best uses for a representative office: registering a representative office is usually used to “test” the Japanese market, before registering a branch or a subsidiary.