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Types of companies in Japan

Updated on Thursday 08th July 2021

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One of the most developed countries in the world, Japan attracts thousands of investors each year, even though the cultural impact is strong in the beginning, especially for EU or USA entrepreneurs. The forms of business are mostly similar to the worldwide forms of business.
 
There are the sole proprietorships, the companies, and the partnerships. The partnerships are divided into general partnerships (Go-mei Gaisha) and limited partnerships (Go-shi Gaisha). The companies may be joint stock companies (Kabushiki Kaisha) or limited liability companies (Goudou-Gaisha). 
 
Our company registration specialists in Japan can offer you more information about each type of company and can help you choose the most suitable one for your business needs.
 

The main business forms in Japan

 
Investors may choose between several business forms when they incorporate a company in Japan. Moreover, foreign companies can choose to establish their presence on the market in more than one way.
 
Below, our team specializing in company formation in Japan lists the main business forms.
 
  1. Kabushiki-Kaisha: the Japanese equivalent of the joint-stock company; suitable for medium or large companies in general;
  2. Godo-Kaisha: the Japanese LLC, it is a separate structure from its founders; suitable for smaller businesses;
  3. The partnership: suitable for two or more business partners who share a similar business goal and are willing to share profits and liabilities; two forms are possible, detailed below;
  4. The sole trader: the simplest business form, also has the highest degree of liability; please read below if you wish to know more;
  5. The branch: one of the ways in which a foreign company can establish its presence on the Japanese market; the most important issue to consider is that the foreign entity is fully liable for its Japanese branch.
 
Details about each of these can be found below in this article. If you have questions, please do not hesitate to contact us.
 

The sole proprietorship in Japan

 
The sole proprietorship is the basic form of business in Japan. Is formed by a single owner, fully liable for the business debts but who can keep the profit of the company. In the event of liquidation, his personal assets are not protected from the creditors’ claims. Company registration in Japan is simpler for this business form, compared to others.
 

The joint stock company in Japan

 
The joint stock company is a preferred business form by those interested in starting a company in Japan because it can be created with a small capital, as little as 1 JPY. It must have at least one founder who can also be the sole shareholder; it can be a natural or legal person.
 
A board of directors assures the management of an open Kabushiki Kaisha, and it must have at least one company director. According to the Companies Law, the company chairman and the president of the company may have limited decision-making abilities, in those cases where the presence of all the appointed directors is needed. For this type of company, the directors are appointed for one to ten years and they can be reelected or they can be appointed for a fixed term of two years. The difference lies in the capital of the company and the total liabilities as well as whether or not the company is subject to restrictions that apply on the transfer of shares.
 
The Kabushiki-Kaisha (joint-stock corporation) will need to have a representative director who will have the right to engage in business, to execute the respective activities. When no such director is appointed, the executive officers will have the right to represent the company.
 
This type of company is subject to more complex requirements regarding taxation and reporting and it must public the financial statements. It can appoint one or more auditors, however, at least one is needed when there is a board of directors and no accounting counselor. Investors who open this business form, particularly in case of large businesses, can opt to also establish a board of auditors composed of three or more auditors.
 
The Japan company formation process for the joint stock company is based on the Articles of Association, which must state: the name of the company, the address of headquarter, the name and address of the founder, the goals of the company, the value of the authorized capital and if applicable, the amount of non-cash contribution and the number of shares issued for that and the name of the members who provides non-cash contribution. Sometimes, the articles of association mention the maximum number of auditors and directors. The joint stock company may issue all types of shares.
 
The Articles must be registered at the Japan Legal Affairs Bureau which will provide a certificate of registration. If you need help in the procedure of starting such a company in Japan, you should know that we can elaborate the Articles of Association and we can take care of the entire registration procedure of this company type.
 

The limited liability company in Japan

 
The limited liability company (Godo-Kaisha) is also a popular business form in Japan, suitable mostly for small and medium companies. As the name suggests, the members of a limited liability company in Japan have their liability limited by their contribution to the capital. It does not have a minimum number of legally stipulated executives and it does not need to have a regular general shareholder’s meeting. The managers are elected for an undetermined period of time.
 
The main difference between the joint-stock company and the limited liability company is that the first one can offer its stocks to the public while the latter does not have this option. If the founders believe that this is a suitable step, or if they wish to extend the business, a Godo-Kaisha may be reorganized as a joint stock company if all the company’s members agree with the decision.
 

The general partnership

 
A general partnership is a form of business usually formed by members united under the same name, with the same objectives. The difference between the usual general partnership and the Japanese general partnership is that the last one may be formed by a single member.
 
The risks of incorporating this type of business are indisputable: if the partnership cannot pay its debts and obligation, the personal assets of the partners may be seized.
 

The limited partnership 

 
The limited partnership is formed by two types of members: with unlimited liability, called general partners or with liability only to the extent of their contribution to the partnership’s capital called silent partners. Just like in the case of the general partnerships, the assets of the members are not protected in case of liquidation.
 
Investors can choose to form a limited liability partnership. as its name suggests, it allows for the same limited liability (up to the amount of capital invested) just like in the case of the limited company, but with the benefits of a partnership (sharing the business goals and collaborating towards them). 
 

The branch of a foreign company

 
Foreign investors who choose to create a company in Japan have another option apart from the limited liability company or a joint stock company can open a branch office in Japan. A Japanese resident must be appointed as the branch representative. Foreign companies benefit from a simpler incorporation procedure: they need to appoint the local representative, bring forward the foreign company’s documents and create a local place for doing business. Branches in Japan are taxed at the same corporate income tax rate for the profits they derive from the country.
 

A subsidiary in Japan

 
Subsidiaries in Japan are generally established as joint stock companies (Kabushiki Kaisha) or a limited liability company (Godo Kaisha).
 
Subsidiaries in this country are considered as being more ingrained to the business environment of Japan because they have the status of a Japan business entity.
 
This type of company is organized as a separate legal entity, having a flexible relationship with the parent company. Subsidiaries in Japan have a greater legal authority of acting independently than branches and can assume liabilities separately from the parent company. Our company formation advisors in Japan can offer more details on this matter. 
 
Contrary to opening a branch office, registering a joint stock company as a subsidiary requires a longer and somewhat costlier procedure.
 
Many international corporations, though, choose to incorporate a joint stock company subsidiary in Japan as it confers a greater confidence for customers and business partners, proving the company’s commitment to the Japanese market.
 

The liaison office in Japan

 
When international corporations or business owners want to effectuate a market research before opening a trading business entity or a branch or subsidiary, they have the option of setting up a liaison office in Japan.
 
A liaison office in this country can be established without any type of notification or registration with the Japan authorities.
 
This type of office does not have to pay any taxes either and the funds needed for the office can be freely sent to it. 
 
To gain such a status, the liaison office in Japan should not be a permanent entity and it not allowed to sign contracts, take orders or collect or invoice money.
 
When starting a business in Japan, it is possible to set up two or several business entities. For example, you might want to open an entirely owned subsidiary.
 
In addition, you have the option of continuing using existing relationships with a trading company which generates sales, while the subsidiary is established.
 

Company registration requirements in Japan

 
The Company Law provides for similar requirements for local and foreign investors who want to open companies in Japan. The requisites apply to most types of companies in Japan. Among these are the fact that the company must have a legal or registered address in a Japanese city and the investor must prepare the company’s incorporation documents. This is a step during which our agents who specialize in company formation in Japan can help you.
Among the requirements for opening a company in Japan, one must also know that even if the law does not require the share capital to be deposited at once, it must be increased during a specific period of time depending on the type of company chosen. Also, the company’s bank account must be opened after the registration procedure is completed.
 

Company formation steps in Japan

 
Foreign investors who open companies in Japan must consider the following steps upon incorporation with the Trade Register:
  1.        preparing the Articles of Association, having them notarized and filed with the Trade Register;
  2.        having the company seal prepared and registered with the Japanese Trade Register;
  3.        registering the company for taxation and social insurance purposes with the tax authorities;
  4.        opening the company’s bank account and depositing the share capital;
  5.        applying for the necessary business licenses or obtaining specific authorizations.
If you want to set up a company in Japan and need guidance, we can offer the support needed throughout the whole procedure of registering the business with the authorities.
 

The time needed to open a company in Japan

 
The registration procedure can be completed in a few weeks, no matter the type of Japanese company. Foreign investors should know that the lengthiest procedure is the opening of the corporate bank account which can take up to four weeks, which is why in the beginning the shareholder is required to set up a personal bank account in order to deposit the share capital and then move it to the company’s account.
 

Taxation in Japan

 
Investors who open a company in Japan also need to keep in mind the tax requirements and registrations, including those for the consumption tax.
 
The taxation regime will depend on the chosen business structure in the sense that corporations, which are separate legal entities, are taxes according to the corporate income tax rate, while a sole trader will observe the tax rates for individual income (as there is no distinction between his income and the income of the business, hence the liability concerns).
 
The following taxes apply for corporations in Japan in 2021:
 
  • - Corporate income tax: 23.2% (or between 30% and 34% including the local taxes); the same rate also applies to branches;
  • - Withholding tax: 20% for dividends in case of residents; 0% for interest, royalties and technical services fees;
  • - Consumption tax: a standard rate of 10% and two reduced rates of 0% and 8% for certain types of goods and services;
  • - Other taxes: social security contributions amounting to approximately 16.24% (the highest combined employer portion); stamp duty and real property tax are also applicable in Japan.
Japan has concluded more than 75 income tax treaties. Companies are expected to observe the filing and payment requirements that include filing the final tax return and paying the final taxes within two months after closing the fiscal year.
Our local consultants offer personalized company registration services in Japan that also include services related to tax registration as well as additional information about tax compliance when you open a company in Japan.
 

Choosing the type of company in Japan

 
Selecting a suitable business form is the first step after deciding to open a Japanese company. It is an essential step that will influence the actual incorporation process (the requirements are more complex for corporations compared to other business forms) as well as the management and the fiscal requirements.
 
Foreign and local investors in Japan can benefit from working with our team once they decide to start a business. We can help prepare the incorporation documents, assist investors in making the needed registrations as well as applying for the special permits and licenses required in their selected industry. Most importantly, we can guide investors when choosing the business form by answering a number of questions, such as:
 
  1. Tolerance to liability: as noted above, certain business forms have a high degree of liability; is the investor willing to comply with this or does he wish to follow the process and requirements for opening a corporation and in this way protect his own assets?
  2. Number of partners or founders: both the sole trader and the LLC can be incorporated by a single individual, however, the number of possible founders can determine the choice in the favor of one of the two types of corporations;
  3. Available investment capital: the initial share capital is low, however, other costs need to be taken into account which depend on the industry as well as whether or not the investor chooses to incorporate a company.
 
 
Our Japan company formation agents are experienced in registering companies and are ready to assist businessmen no matter the legal structure chosen by them.

 

Meet us in Tokyo

Call us now at (+44)203-287 0408 to set up an appointment with our company formation agents in Tokyo, Japan. Alternatively you can incorporate your company without traveling to Japan.

As our client, you will benefit from the joint expertize of local and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Japan.

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