Introduction

Japan is one of the most developed countries in the world which attracts thousands of investors every year. This article aims to give a brief overview of business forms in Japan as such, people who want to start a business in Japan can take it as a reference. Since each business operation has its peculiar features and characteristics, foreign companies or foreign individuals should consider and choose the best way to pursue its business plan and activities in Japan.

Types of Business Operation

If a foreign company wishes to set up a business entity in Japan to operate their business, basically there are three options of business form you can choose from:

1.     Representative Office (駐在員事務所 Chuzaiin Jimusho)

2.     Branch Office (支店 Shiten)

3.     Subsidiary or Japanese Company (子会社 or 日本法人 Kogaisha or Nihon Houjin)

If foreign individuals who don’t own any company outside Japan but intend to start a business in Japan, generally they can choose from two options; setting up a company or a sole proprietorship.

Representative Office Branch Office Japanese Company (Subsidiary)

Marketing Research

For Profit and Sales Activities

Legal Registration

Not Required

Required

Required

Appointment of Directors

Appointment of at least one representative who resides in / has a registered address in Japan

Appointment of at least one director

Liability

Renting and Leasing

Opening a Corporate Bank Account in Company's Name

Visa Acquisition for the Directors/ Representatives/ Employees


It is required to check whether the Rep. Office satisfies the requirements for visa application

From the table above, we can see the differences between the organizations. Representative Office is an entity that is set up by a foreign company for collecting information, market research, advertising, purchasing goods before starting full-scale business operations in Japan. No legal registration is required, making it easy to start and also costing less. However, the activities which can be performed by a Representative Office are limited, and they are not permitted to engage in sales activities. To engage in sales activities, foreign companies have to establish a Branch Office, Subsidiary of the parent company or Japanese Company and register it at the Legal Affairs Bureau. Japanese Branch Office is set up to conduct business activities determined by the head office outside Japan. Therefore, in terms of the Japanese Companies Act, Branch Office does not have its legal corporate status in Japan and thus, recognized as a part of the foreign company. Also, Liabilities of the Japanese Branch Office is generally attributed to the head office.

Types of Japanese Company (Subsidiary)

There are several types of companies in Japan – Kabushiki Kaisha, Godou Kaisha, Goshi Kaisha, Gomei Kaisha, to name a few. It can be broadly divided into stock companies (Kabushiki Kaisha) and membership companies, which include the limited liability company (Godo Kaisha), general partnership (Gomei Kaisha) and limited partnership (Goshi Kaisha). The most popular one is Kabushiki Kaisha. The limited liability company (Goudou Kaisha) is getting a little popular because of its simplicity in setting up and lesser costs. Limited partnership (Goushi Kaisha) and general partnership (Gomei Kaisha) are not so popular since they have to bear unlimited liability. We have made a table to help you understand the basic difference between types of Japanese company. For more details on the various company types in Japan, check out our articles on What is Kabushiki Kaisha/ What is Godo Kaisha? Gomei Kaisha & Goshi Kaisha.

Stock company (Kabushiki Kaisha) Limited liability company(Godo Kaisha) General partnership (Gomei Kaisha) Limited partnership (Goshi Kaisha)
Number of partners
Minimum of 400 to keep listing on the Tokyo Stock Exchange
Minimum of 1
Minimum of 1
Minimum of 2
Shareholders and Liabilities
Limited to the amount of capital contributed
Limited to the amount of capital contributed
Unlimited liability
Unlimited liability for the active partners; Limited to the amount of capital contributed for the sleeping partners
Paid-in Capital
Minimum of JPY 1
Minimum of JPY 1
No minimum capital
No minimum capital
Taxation
Company is taxed on its profits. Shareholders have to pay taxes on dividends
Company is taxed on its profits. Shareholders have to pay taxes on dividends
Partnership is taxed on its profits. Shareholders have to pay taxes on dividends
Partnership is not taxed but partners have to pay taxes on profits allocated
Establishment Cost (Minimum legal fees only)
Registration and license tax JPY 150,000 Attestation fee of the Articles of Incorporation JPY 52,000 Articles of Incorporation stamp JPY 40,000
Registration and license tax JPY 60,000 Articles of Incorporation stamp JPY 40,000
Registration and license tax JPY 60,000 Articles of Incorporation stamp JPY 40,000
Registration and license tax JPY 60,000 Articles of Incorporation stamp JPY 40,000
Division of Profits
Dependent on the capital contribution ratio
Free
Free
Free

Note:1 USD = 111.59 JPY (as of 23 Feb. 2020)

The most apparent characteristic of Godo Kaisha is that the investors are the same as managers, and they are limited liability partners. Therefore management can make a quick decision. Also, they do not take responsibility beyond investment, and thus, the risk is limited compared with unlimited liability partners. On the other hand, with Kabushiki Kaisha, when voting on important corporate issues, any decision must be unanimous with voting rights related to one’s financial investments.

One of the merits of Godo Kaisha is that the expense to establish Godo Kaisha is relatively low compared with Kabushiki Kaisha. Firstly, Godo Kaisha doesn’t need certification of Articles of Incorporation. But on the contrary, it is necessary for a Stock Company to be certified by a notary public at a fee. Also, the minimum amount of registration and license tax for incorporation is 60,000 yen for Godo Kaisha, whereas it is 150,000 yen for a Kabushiki Kaisha. So if you need to shorten the time to incorporate or capital source is not enough, Godo Kaisha is preferred. It is worth noting, however, that one of the risks of Godo Kaisha is that if an investor resigns and requests withdrawal of his investment, capital decreases even though the Companies Act has set a specific limit.

 

It may be important to add also, that Godo Kaisha is a relatively new company type created in 2006 and is less recognized compared with Kabushiki Kaisha. Kabushiki Kaisha, on the other hand, is a more common type of company in Japan, as they date back to 1873, the date of the very first incorporation in Japan. 

Conclusion

Each type of business operation has its characteristics, so it is recommended to choose the type most suitable for the company you intend to develop or you are already running. In case you or your company are planning to set up business in Japan for the first time, it would be better to set up a “Representative Office” first for the observation, market research, market development or promotion in Japan. Then, you can move on to the next step – setting up a Branch Office, Subsidiary of the parent company or Japanese Company separated from the parent company.

Notes for the readers:
Please use this article only as a reference, not as a legal guideline. Therefore, sugee.jp will take no responsibility or liability, so far as legally possible, for any consequences of your actions. This article was written on 23 February 2020.

References

[1] Center., C. (2020). Entering the Japanese Market (Type of Business)Starting Up Your Business in Osaka: IntroductionBusiness Start UpOsaka Business and Investment Center O-BIC – We support foreign companies setting up business in Osaka. [online] O-bic.net. Available at: https://o-bic.net/e/setup/j-market.html [Accessed 22 Feb. 2020].

[2] Companyformationjapan.com. (2020). Types of companies in Japan. [online] Available at: https://www.companyformationjapan.com/types-of-companies-in-japan [Accessed 22 Feb. 2020].

[3] Jetro.go.jp. (2020). 1.2 Comparison of types of business operation | Section 1. Incorporating Your Business – How to Set Up Business in Japan – Investing in Japan – Japan External Trade Organization – JETRO. [online] Available at: https://www.jetro.go.jp/en/invest/setting_up/section1/page2.html [Accessed 22 Feb. 2020].