Introduction

Many people have a misunderstanding about the definition of nonprofit organizations in Japan that nonprofit is not profitable. Actually,in the case of general nonprofit organizations, the term of profit here means not sharing profits with shareholders and investors. It does not mean that people should not do a profitable business. There are many types of nonprofit organizations (NPOs) in Japan,such as the incorporated foundation(Zaidan Hojin=財団法人), the incorporated association(Shadan Hojin=社団法人), NPO. This article is specifically about the general incorporated association (Ippan Shadan Hojin=一般 社団 法人, abbreviation:ISH), which is also one of the most commonly chosen business operations by foreigners in Japan.

Characteristics

1. Although the image of the main purpose of NPOs is to engage in the nonprofit activity, there are no restrictions on the business purpose of ISH. It is also possible to conduct a profit business as well. Nonprofit here only means that No member of ISH shall receive any profit from their business.

2. Special definitions different from other business types.

The definitions of some words are different from other types of business operations. you will understand the difference after reading the form below.  


Shain=社員Jugyoin=従業員Yakuin=役員
MeaningMemberEmployee Officer
FeatureCan be not only individuals but also corporations and organizations.
Get salary according to employment agreementInclude directors, auditors, and accounting auditors.At least one director, an auditor must also be appointed to oversee the board with three or more directors.Officer’s compensation is also paid,but can not receive any profit from their business .

3.ISH can be established by two or more members who belong to the General Meeting of Members. It can be established by registering with the Legal Affairs Bureau or the Local Legal Affairs Bureau that has jurisdiction over the location of the main office.  Also, there must be at least one director, in other words, directors, and members can be concurrent even if there are only two people subordinate to the General Meeting of Members.

4.ISH can be established without funds and property. But it needs a fund system as a means of raising funds for daily operations, which is also the basic assets of the ISH collected from members and third parties other than members. The Points of Fund System are no entry, required to be returned under certain conditions, must be stated in the articles of incorporation, etc.

5.ISH is divided into two types in the tax system: ordinary type and non-profit type. The ordinary type has the same tax form as ordinary corporations such as Kabushiki Kaisha and Godou Kaisha. While the non-profit type has tax incentives that almost equivalent to NPO corporation, which is regarded as a representative of the nonprofit corporation.

Advantages & Disadvantages

From the table below, you can understand the difference between a KK company (Kabushiki Kaisha) and ISH clearly. 


Stock Company (Kabushiki Kaisha)Ippan Shadan Hojin
Number of partnersMinimum of 400 to keep listing on the Tokyo Stock ExchangeMinimum of 2
Shareholders and liabilityLimited to the amount of capital contributedMembers may be liable for damages caused by the establishment of a general incorporated association
Paid-in capitalMinimum JPY1 No minimum capital
TaxationCorporation is taxed by its profits. Shareholders have to pay taxes on dividendsFor-profit type is taxed for all businesses. Non-profit corporations, only income from profitable businesses is taxable
Establishment cost (Minimum legal fees only)Registration and license tax 150,000Attestation fee of the articles of incorporation 52,000Articles of incorporation stamp 40,000Notary fees 50,000Registration and  license tax 60,000 
Division of profitsDepend on capital contribution ratioDo not distribute surplus profit

Note:1USD=107.57Yen (2020.4.1)

We can find out that the ISH  is easier to establish compared to the KK company, but there is no doubt that it is not a good choice for people  pursuing business profit. 

In addition to the above, there are several other advantages to conducting business operations in the form of ISH as well. 

  • As mentioned above,ISH is divided into ordinary type and non-profit type in the tax system. In the case of non-profit type, tax exemption is applied to income other than profitable business, which means that there is no need for people don’t have a profitable business to pay corporate tax.
  • High social reliability. It is possible for anyone to check the business operations at the Legal Affairs Bureau because of the registration of the company, Also, people have a natural good impression of the name incorporated association, which also leads to reliability. For a small company just established, it is very important to be reliable from the start.

Every coin has two sides, ISH also has its inherent shortcomings.

  • Since ISH cannot be listed on the stock market even if the business is successful and the company wants to expand its activities. Also, the purpose of Kabushiki Kaisha is profit, which is completely different from the non-profit business of ISH.
  •  It is required much more time and human resources to separate non-profit and for-profit businesses, and then manage the paperwork and tax-related document at the same time. 

Procedure

The process to incorporate ISH ( general incorporated association ) is similar to that of KK company ( = Kabushiki Kaisha = 株式会社 ) or GK company( = Godo Kaisha = 合同会社).

1. Make articles of incorporation ( teikan= 定款 )

The items required by the articles of incorporation of ISH are as follows.

  •  Name of ISH
  • Address of ISH

You can determine your apartment as the address of your association.

  •   Purpose of ISH
  •  Name and address of director ( You need to prepare at least 1 director. ) 

You can also appoint an auditor ( Kanji = 監事. You can establish ISH without auditor ).

  • Matters related to membership

For example, distinguish regular member or special member and membership fee.

  • Organization of your association.

( You can incorporate ISH without the board of directors (Riji kai = 理事会).

In that case, members can determine important matters to operate your association by general meeting = Shain Sokai = 社員総会 )

  • The business year of organization

2.Certification of Articles of Incorporation

The articles of association must be certified by a notary public belonging to the Legal Affairs Bureau that has jurisdiction over the main office location and the notary’s fee of 50,000 yen is required.it should be noticed that only the Articles of Incorporation written in Japanese can be notarized.

3. Appoint officer ( Yakuin役員 ) at incorporation.

You can appoint a representative director  (Daihyo Riji=代表理事). Who corresponds to the representative director of a stock company ). And you also can determine other matters to operate your association.

4. Make necessary documents and file registration of incorporation of ISH with a registration tax of 60,000 yen.

Necessary documents:

  • Articles of incorporation notarized by the notary public.
  • Minutes where directors, representative director, and auditors are elected by members and where the address of head office of ISH is determined.

 ( In the case directors and auditors are appointed and the address of head office of ISH is determined in articles of incorporation, this kind of minutes is not necessary )

  • Acceptance of appointment of the director, representative director, and the auditor.

When a person is appointed as director, representative director, auditor, she needs to affix her seal on this paper to prove her acceptance. On this paper, director and representative director need to affix their registered personal seal ( Jitsuin=実印 )

  •  Certificate of seal impression of the director ( Inkan Shomeisho=印鑑証明書 )
  • Application for registration of association seal ( Inkan Todokedesho=印鑑届出書 ).

You need to prepare an association seal to be registered with the legal affairs bureau.

  • Application form for issuance of seal card.

With this card, you can obtain the certificate of association seal.

5. Submit the application form to register your ISH to the Legal Affairs Bureau ( Homukyoku=法務局) that has jurisdiction over the location of the head office. At this point, the company legally exists.

When you have incorporated ISH, you need to make a balance sheet and submit the notification of the establishment of your association to the tax office, prefectural office, city hall. In this process, you need to submit a certified copy of the commercial register.

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 is written on 31 March 2020.

Reference

[1]How to incorporate Ippan shadan hojin ( 一般社団法人 = general incorporated association) in Japan…. Lawyer in Japan. (2020). Retrieved 31 March 2020, from http://japanhousesaitama.lawyerjapanese.com/saitama/page-1131/.

[2]一般社団法人を設立する流れ・メリット・費用総まとめ | 起業・創業・資金調達の創業手帳. 起業・創業・資金調達の創業手帳. (2020). Retrieved 31 March 2020, from 

https://sogyotecho.jp/institute/.

[3]合資会社、合名会社、社団法人、財団法人、NPO法人の違いについて. 超かんたん 会社設立メディア. (2020). Retrieved 31 March 2020, from 

https://www.venture-support.biz/media/establishment/7824.html.

[4]株式会社と何が違う?「一般社団法人」設立・解散の基礎知識 | 富裕層向け資産防衛メディア | 幻冬舎ゴールドオンライン. 幻冬舎ゴールドオンライン. (2020). Retrieved 2 April 2020, from

https://gentosha-go.com/articles/-/22504.