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