Start Your Business in Japan 1

Yoneyama, June 2022

This week and thereafter, I would like to talk about procedures of starting up a business in Japan.

In general, there are two ways of starting up your business, namely, incorporation and individual business ownership.

 

 

The following are rough comparisons between the two:

 

                                     Individual business                             Incorporation

 

Registration                 Notification of opening business         Legal person registration to

                                      to be submitted to Tax Office              Ministry of Justice

 

Cost of starting up      No cost                                                Stock company: 250,000 yen or higher

                                                                                                  LLC: 100,000 yen or higher

 

Tax                                Income tax                                          Corporate tax

                                      Individual residential tax                    Corporate inhabitant tax

                                      Consumption tax                                 Consumption tax

                                      Enterprise tax on individual                Enterprise tax on corporation

 

                                    Progressive tax rate increases are larger for individual business.

                                    Corporate inhabitant tax has to be paid even if bottom line is

                                    negative (deficit).

 

Cost recognition        Most of the cost of doing business         Most of cost of doing business

                                    can be recognized as deductible             can be recognized as deductible

                                    except for owner’s salary, life                 including founder’s salary and

                                    insurance premium etc.                           retirement fee etc.

 

Carry-over of deficit  Maximum 3 years                                 Maximum 10 years

 

 

I would like to talk about procedures of founding a corporation in Japan.

Japan’s Corporate Law defines two categories of corporation, stock companies(株式会社) and limited liability companies(合同会社).

The following are rough comparisons between the two:

 

                                                           Stock Company                                   Limited Liability Company

 

Cost of starting up                           250,000 yen or higher                           100,000 yen or higher

                                                                       

Institutional finance                        Relatively easy                                       Not so easy

 

Scale-up like IPO                             Yes                                                         No

 

Social recognition                            Relatively high                                      Relatively low

 

Public notice                                     Mandatory                                            No need

 

Term of directors                               2 years                                                  No limit

 

Distribution of profit                          Dividend based on share                     Free arrangement

 

Next, I would like to talk about the concrete steps that you, the founder of your stock company has to follow in Japan.

 

 

First, you need to make your corporate bylaws, which should consist of the following definitions:

 

1.   Official name

It is not allowed to establish a corporation with the same name and same H.Q. address of any preexisting company.

 

2.   Purpose/Mission

If your business requires a license or permission from the central and or any local government, you’d better check the prospect beforehand if your new corporation would be granted such a license or permission.

 

3.   Address of the headquarters

4.   Stock

Maximum number of stocks that can be issued is defined as well as an initial stock price and whether or not actual paper stocks are issued are defined.

Also, conditions and constraints of transferring or succeeding stocks between the original shareholders and between an original shareholder and an outside individual are defined.

 

5.   Shareholders meeting

How to call the meeting and how to chair and operate and how key decisions be made are defined.

 

6.   Directors, auditors, representative directors, board of directors meeting

Individual institutions’ responsibility and power are defined.

 

7.   Fiscal year, dividend and so forth

 

For details, please visit the following link:

https://houmukyoku.moj.go.jp/homu/content/001331097.pdf

Once you completed the bylaws of your company, you need to have it certified by a notary public office of the prefecture where you apply for incorporation of your company. This certification is intended to make the bylaws critical evidence to avoid any future dispute or conflict that might arise between the management and the shareholders of your company if the two parties are clearly divided. If you found an LLP, you are not required to notarize the bylaws because the management and the shareholders are normally the same people.

 

The below shows the steps of the notarization of your bylaws:

 

Step 1 Prepare for necessary documents and seal

Once bylaws are completed, make three copies of them with the following documents and seal:

l  Individual incorporators’ jitsuins (registered seals) and their seal certificates

l  Declaration of a beneficial owner

l  Power of attorney if you ask your agent to visit a notary public office.

 

Step 2  Make an appointment with a notary public office and have your bylaws checked beforehand

You find a nearby notary public office, call the office for an appointment to visit and fax or email your draft of bylaws so that a notary will be able to check it before your actual visit.

 

Step 3  Visit the notary public office with the documents and seal, and have your bylaws notarized

If you send a draft of your bylaws beforehand, your notary may point out some words or articles to be added, deleted or changed early, and you will be able to bring in revised copies. Sometimes, your notary may ask for additional revisions.  If they are relatively small revisions, you will be able to hand write the changes by stamping your seal over the changes.Out of the three copies of bylaws, one copy is kept by the notary public office, and the other two notarized copies are returned to you.  You will keep one copy for your company’s file, and use the other copy for corporate registration. Lastly, the fee for notarization is 50,000 JPY, while you have to also pay for stamp tax in the amount of 40,000 JPY.