How to establish a Japanese Corporation for Overseas Companies

For overseas companies planning to enter the Japanese market, establishing a local entity is essential. While sending expatriates or setting up a branch office are options, they come with limitations such as the prohibition of sales activities and lack of an independent corporate identity. Thus, forming a Japanese corporation offers greater business flexibility within Japan.

This article outlines the process and features of establishing a Japanese corporation.

Types of Corporations for Overseas Companies in Japan

Overseas companies typically choose between a Joint-stock Company (Kabushiki Kaisha - KK) and a Limited Liability Company (Godo Kaisha - GK) when establishing a presence in Japan. The main differences are as follows:

	Joint-stock Company (KK)	Limited Liability Company (GK)
Relationship between owners and managers	Ownership and management are separated	Owners are the managers
Capital fundraising through stock issuance	Possible	Not possible
Social credibility	High	Low
Approximate attorney fees for establishment	About 500,000 yen	About 300,000 yen
Total establishment costs	From about 680,000 yen	From about 360,000 yen
Time to establish	Generally about 2 months	Generally about 1 month

Joint-stock Company (KK)

A KK is a company type that raises funds by issuing stocks, using those funds for management. It has the advantage of separating ownership from management, though investors (shareholders) can also be managers. Currently, KKs have higher recognition and credibility in Japan, and larger companies tend to choose this form. However, the establishment costs are slightly higher and the procedures are more complex compared to GKs. For businesses aiming for large-scale operations, a KK would be more appropriate in the long term.

Limited Liability Company (GK)

A GK is a company form where the investors are also the managers, allowing for quick decision-making without shareholder meetings. The establishment process is relatively simple and costs are lower. However, since it cannot issue stocks, fundraising options are limited and it cannot go public. There's also a perception in Japan that GKs are companies with scarce funds, which can make it challenging to gain trust from business partners and recruit talented employees.

Establishment Process of a Japanese Corporation for Overseas Companies

Here's a detailed explanation of the process to establish a Japanese corporation by overseas companies (Reference: JETRO, Japan External Trade Organization).

Joint-stock Company (KK)

Establishing a KK takes about 2 months.

1. Research and Creation of Trade Name: Ensure the desired trade name is not already in use.
2. Articles of Incorporation: These are the fundamental rules of the corporation's organizational activities. They must include certain required items.
3. Preparation of Parent Company Documents: Obtain the parent company's registration certificate and prepare sworn affidavits about the parent company's outline and representative's signature, which need to be authenticated by a notary in the home country.
4. Notarization: Performed at a notary office in Japan.
5. Capital Contribution: The capital is deposited into an account of the incorporator or the designated representative director.
6. Registration Application: Apply for company registration with the Japanese Legal Affairs Bureau.
7. Acquisition of Certificate of Registered Matters and Company Seal Registration Certificate: Obtainable within 4 to 14 days after application. Essential for opening company bank accounts in Japan.
8. Opening a Bank Account: Under the company's name.
9. Notification of Share Acquisition to the Bank of Japan: Necessary for certain industries before establishing the company.
10. Corporate Establishment: Submit the corporate establishment notification and other related documents to the local tax office and complete the establishment of a KK.

Limited Liability Company (GK)

Establishing a GK takes about 1 month.

1. Research and Creation of Trade Name: Similar to KK.
2. Preparation of Certificates for Members (Investors): GK calls its investors "members". Obtain the registration certificate of the member(s) and prepare sworn affidavits about their details.
3. Articles of Incorporation: Though notarization is not required, articles still need to be created for bank and other official purposes.
4. Capital Contribution: Members transfer the capital after creating the articles of incorporation.
5. Registration Application: Apply for company registration with the Japanese Legal Affairs Bureau.
6. Acquisition of Certificate of Registered Matters and Company Seal Registration Certificate: Obtainable within 4 to 14 days after application.
7. Opening a Bank Account: Under the company's name.
8. Notification of Equity Acquisition to the Bank of Japan: Necessary for certain industries before the establishment.

Costs Associated with Establishing a Japanese Corporation

	Joint-stock Company (KK)	Limited Liability Company (GK)
Revenue Stamp for Articles of Incorporation	40,000 yen (0 yen for electronic articles)	40,000 yen (0 yen for electronic articles)
Copy of Articles of Incorporation Fee	About 2,000 yen	0 yen
Notarization Fee for Articles of Incorporation	30,000 - 50,000 yen	0 yen
Registration License Tax	150,000 yen -	60,000 yen -
Attorney Fees	About 500,000 yen	About 300,000 yen
Total Amount	About 680,000 yen -	About 360,000 yen -

The main differences in registration costs are the notarization fee for the articles of incorporation and the registration license tax. GKs do not require notarization, and their registration fee is less than half that of KKs, contributing to the lower overall establishment costs. However, KKs remain popular due to their advantages.

Attorney fees vary depending on the provider. While company establishment alone can be relatively inexpensive, costs can increase if ongoing support is also sought.

Key Considerations for Overseas Companies Establishing a Corporation in Japan

When establishing a corporation in Japan, overseas companies often face unique challenges. This section explains these challenges and provides guidance on how to navigate them.

1. Required Documents for Registration Application Overseas companies need to prepare both general documents required for corporate establishment in Japan and specific documents proving the involvement of the foreign company. Examples of the latter include the foreign company's articles of incorporation, certificate of incorporation, registry certificate, sworn statements about the company's overview, and applications for the appointment of representatives and establishment of business offices in Japan.
   (source: The Ministry of Justice, Japan)
2. Documents for Articles of Incorporation Authentication For establishing a joint-stock company (KK), documents such as the certificate of eligibility (equivalent to the registry certificate) and the seal registration certificate are essential. Since foreign companies may not have Japanese equivalents, alternatives like the certificate of incorporation or a license issued by competent authorities in the home country can be used.
3. Prior Notification Under the Foreign Exchange and Foreign Trade Act Certain industries require prior notification to the Bank of Japan if foreign investors intend to make significant investments in a Japanese corporation. A waiting period of 30 days post-notification is mandatory for regulatory review before registration can proceed.
   (source: Bank of Japan)
   • Industries requiring prior notification include (not only):
     • Manufacturing related to weapons, aircraft, space development, and nuclear energy, including related repair and software industries.
     • Industries capable of dual-use in military applications.
     • Production of pharmaceuticals for infectious diseases, high-control medical devices.
     • Mining of critical mineral resources, construction industries for specific isolated islands and port facilities.
     • Cybersecurity sectors including manufacturing of related equipment, parts, software, and information service industries.
     • Infrastructure sectors such as electricity, gas, telecommunications, water supply, railways, petroleum, heat supply, broadcasting, passenger transport, security services, agriculture, forestry, fisheries, leather goods manufacturing, air transport, and maritime industries.

4. Minimum Capital Requirement Although a corporation can be established with a capital of 1 yen if a Japanese national is the representative, foreign representatives using the "Business Manager" residency status must have a capital of at least 5 million yen for the business.
   (source: Ministerial Order to Provide for Criteria Pursuant to Article 7, Paragraph (1), Item (ii) of the Immigration Control and Refugee Recognition Act, Ministry of Justice Order No. 16 of May 24, 1990)
   • Requirements for the "Business Manager" residency status include:
     • The business must be of a scale that employs at least two full-time residents in Japan other than the manager or has a capital of at least 5 million yen.
     • Part-time workers do not meet the employment criteria for this status.

5. Complexities in Capital Remittance After creating the articles of incorporation, the capital must be transferred to a bank account in the name of the incorporator or the representative director. It's important to note:
   • The account must be with a bank in Japan (including foreign banks' branches in Japan or Japanese banks' overseas branches).
   • Remittances must be made in Japanese yen.
   • Even if prior notification is not required, post-establishment reporting is mandatory.

6. Industry-specific Licenses and Permits Certain industries, such as the food and beverage industry, require specific licenses or permits from relevant authorities at the time of corporate establishment.
7. Residency Status for Foreign Managers Foreign nationals residing in Japan with a non-"Business Manager" status must change their residency status. Additionally, overseas residents intending to manage a business in Japan need to obtain a new "Business Manager" status. A reliable local contact or legal representation is crucial as residency applications cannot proceed without completed establishment registration.
8. Challenges with Office Rental Contracts in Japan Foreign companies face specific challenges in office leasing:
   • A Japanese national as a guarantor is often required.
   • Transactions and contracts are primarily in Japanese, necessitating staff proficient in the language.
   • While rental offices are more accessible and may accommodate languages other than Japanese, they tend to be more expensive than standard office leases.

9. Compliance with Japanese Labor Laws Employers in Japan must adhere to labor laws, including the Labor Standards Act, which mandates written notification of employment conditions at the time of hiring, under penalty of fines.
10. Japanese Social Insurance System Establishing a company in Japan entails mandatory enrollment in the social insurance system, covering health, pension, workers' compensation, employment insurance, and care insurance, regardless of the number of employees. Costs are shared between the employer and employees, except for workers' compensation insurance, which is fully employer-funded.

Simplifying Japanese Corporate Establishment and Employment Processes

As discussed in this article, establishing a corporation and hiring within Japan involves various challenges. Handling these internally is possible but can be unexpectedly time-consuming and labor-intensive. For a swift and secure entry into the Japanese market, utilizing an Employer Of Record (EOR) service is the optimal solution. EOR services act as the official employer on behalf of overseas companies, managing employment tasks.

Advantages of Using an EOR Service:

• Rapid Startup: Businesses can commence operations within a week.
• No Capital Required: Eliminates the need for initial capital investment.
• Bypasses Incorporation: Avoids the necessity of drafting articles of incorporation, notifications, and obtaining permits.
• Simplifies Exit: Facilitates easier withdrawal from the market without the need for corporate liquidation procedures.
• Secures Employment Without a Local Entity: Enables employment in Japan without establishing a local corporation.

(Reference: What is an EOR? Explaining How to Implement Remote Work from Abroad )

These benefits allow businesses to start operations quickly and with reduced risk. While several foreign EOR providers exist in Japan, challenges may arise due to their lack of familiarity with unique Japanese laws and cultural nuances. This can potentially lead to complications.

To address these concerns, we recommend No Boundaries, a Japan-specific EOR. Designed by consultants with global business experience and Japanese legal experts, No Boundaries is adept at meeting the nuanced needs of overseas companies looking to operate in Japan. Covering the latest legal requirements, No Boundaries minimizes potential issues, offering a reliable and secure means to establish a business presence in Japan swiftly.

For companies aiming for a prompt and hassle-free market entry, consulting with No Boundaries, a specialized EOR provider in Japan, is an excellent first step.

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Article supervised by

Kiyotsugu Manabe (No boundaries Ltd. CEO / Specially Appointed Associate Professor at Kyoto University's office of Society Academia Collaboration for Innovation)

Kiyotsugu Manabe brings a wealth of expertise in international development and management, backed by a robust academic foundation with a Master's degree from the Johns Hopkins University School of Advanced International Studies (SAIS) and the Graduate School of Frontier Sciences at the University of Tokyo, where he specialized in International Cooperation. His professional journey is marked by significant roles at leading international organizations, including the World Bank, JICA, and McKinsey & Company, where he has offered strategic consulting services to governments and multinational corporations across the globe. Manabe's extensive field experience spans a diverse array of countries, including the USA, Vietnam, Thailand, Bangladesh, Iraq, Jordan, South Africa, and Kenya, underscoring his deep understanding of global development challenges and solutions.