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Setting up an office / company in Japan

Incorporation in Japan

With introduction of the new Japanese Corporate Law in May 2006, it has become a lot easier to set up a company in Japan.

Numbers of restrictions such as minimum required capital or minimum number of directors have been abolished, and it has now become possible to establish a Kabushiki Kaisha (Limited Company / joint stock company) with any amount of capital and with only one director.

A director's term of function can also be extended up to 10 years, if such article is added to the articles of incorporation.

To be able to register a company in Japan, it is required to nominate a Representative Director who is already resident in Japan as well as to have an office address where the company can be registered.
It is therefore necessary to find those first if you are not already registered as resident or don't have anyone who could do that on your behalf in Japan.

What are different ways of starting business in Japan?

A foreign individual wishing to start a business in Japan can do so either as a sole proprietor (kojin jigyo) or by setting up a company.

(See here for different types of operation for a foreign company wishing to set up a Representative Office, Branch Office or Subsidiary in Japan)

However the sole proprietorship is not an option that is open for everyone. Those with Spouse of Japanese National visa, Long Term Resident visa, Permanent Resident visa, Spouse of Permanent Resident visa can choose to become a sole proprietor without any restriction.

If you have stable contracts with Japanese companies, it is also possible to work as a sole proprietor with some conditions under "Specialist in Humanities" visa or "Engineer" visa (freelance translator, IT engineer, etc.).

See this page for more about sole proprietorship (kojin jigyo)

If you wish to get a work visa through your own business that you will start in Japan, it is necessary in most cases to set up a company.

Also it becomes more advantageous in some cases to set up a company even if the sole proprietorship is an option for you.

For example, it is easier to gain credibility to do business as a company, especially if you deal regularly with Japanese companies.

A company has a limited liability, so the responsibility is limited to the amount of the capital invested.

After generating certain amount of profit, having a company could offer a possibility to use different tax rates tha would eventually allow you to reduce the amount of tax to pay.

If you are starting business with several partners, it is easier to manage the financial aspects by setting up a company.

So where to start when incorporating in Japan? It's necessary first to decide the type of company to set up.

Different types of company in Japan

There are currently 4 different types of company in Japan :

  • Gomei Kaisha consists of partners with unlimited liability.
  • Goshi Kaisha has at least one partner with unlimited liabilitiy and other partner(s) with limited liability.
  • Godo Kaisha works in a similar way to what is known as LLC (limited liability company) in Western countries and has one or more partners with limited liability.
  • Kabushiki Kaisha is run by shareholders with limited liability and by directors who are appointed by shareholders. This is the most well known, prevailing form of incorporation in Japan, used by most major companies.

The new law does not allow to establish a new Yugen Kaisha (form of company that existed in the past and was largely used by small and medium sized companies) anymore, but existing YK can remain as they are.

There is hardly no interest in newly setting up a Gomei Kaisha or Goshi Kaisha since they need to include partners with unlimited liability.

So practically you have 2 options as to set up a company - Kabushiki Kaisha (KK) or Godo Kaisha (GK / LLC). Now let's see their differences.

Kabushiki Kaisha (KK) Godo Kaisha (GK)
Credibility This is widely known, the most credible form of company in Japan. Introduced in 2006, GK is still not very well known by many people and some might think that it's not as credible as KK.
Setting up costs Around 380,000 yen* Around 250,000 yen*
Governance Basically those who invest (shareholders) and those who run the company (directors) are separeted, although it is possible for a shareholder to become a director at the same time. It consists of partners who invest and run the company at the same time. Different from KK, it is necessary to invest (no matter how small the amount may be) in order to run the company.
Minimum number of people required A shareholder and a Representative Director (can be the same person). The Representative Director needs to be a resident in Japan. One partner who needs to be a resident in Japan
Publication of financial statements Necessary Not necessary
Directors term of office 1 to 10 years with possibility of re-election (which needs to be registered) No fixed term
Advantages Being the most credible form of company, it is easily recognized or trusted by Japanese companies.
KK is useful when you need to have directors who won't invest, or investors who won't involve in the day-to-day management.
Possible to decide freely how to share the profits (dividends) between partners, without being binded to the investment rates. Useful when you have partners who would like to join without making a big financial contribution but who can contribute by providing their knowledge, skills or network.
Disadvantages More costly when setting up Less credible

*including our fees

It is possible to change from GK to KK, or from KK to GK, after the company is registered. The costs of the transformation is about the same as the difference in the setting up costs between KK and GK (around 100 000 yen).

Which should I choose, KK or GK?
  • If you have sufficient funds for and will work regularly with Japanese companies: KK
  • If you budget is limited and the main clients/customers will most likely be individuals or foreign companies: GK
  • If you intend to have other investors or to transfer/sell shares in the future: KK
  • If you wish to devide the profit (dividends) with different percentage than the actual investment rate (for having partner(s) who will provide workforce, skills or know-how rather than contributing financially): GK
  • If you are the sole investor/manager of the company and wish to set up a company in the easiest and fastest way: GK

Now what are the different steps for setting up a company in Japan ?

Let's see next : Procedures and costs : how to establish a company in Japan

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