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Entering the Japanese Market (Type of Business and Status of Residence)
Establishing company in Japan
There are three main types of business structures for foreign start-up entrepreneurs entering the Japanese market.
- 1. Representative office
- 2. Branch office (in Japanese legally known as “Gaikokugaisha no nihon ni okeru eigyousho – a business office of foreign company in Japan”; hereinafter called “Branch”)
- 3. Japanese corporate entity (Kabushiki Kaisha (KK) or Godo Kaisha (LLC))
Let’s take a look at each type of business structure.
1. Representative office
Generally, foreign nationals and foreign companies are free to establish representative offices in Japan for the purpose of collecting and providing information, without notification or registration. However, the business activities of a representative office are limited to market research, advertising and promotion, etc., and contractual activities are not permitted.
This form is mainly suitable for initial research phase (the seed stage). If you enter full-scale business operation starting phase (the early stage), and wish to continue doing business in Japan, you must take the necessary procedures to establish a Japanese corporation or open a branch.
A foreign company may establish a branch office in Japan if it wishes to continue doing business in Japan. It can be registered at the Legal Affairs Bureau and a Certificate of Registered Matters will be issued.
3. Japanese corporations(Kabushiki Kaisha and Godo Kaisha)
Under Japan’s Corporate Law, corporations are classified into two categories: Kabushiki Kaisha (joint-stock corporation) and equity companies (joint-name company, Gomei Kaisha; joint-fund company, Goshi Kaisha; limited liability company, Godo Kaisha). However, there are only two types of corporate forms that foreign investors can use as limited liability: Kabushiki Kaisha and Godo Kaisha (LLC).
- (1) Kabushiki Kaisha(Joint Stock Corporation)
Kabushiki Kaisha is the most popular corporate form, and can be established with an investment of 1 yen or more. (However, if you need a status of residence in Japan, you may be required to invest more than 5 million yen based on the regulation of the Immigration Law.)
- (2) Godo Kaisha(LLC)
In Godo Kaisha, in principle, the investors themselves execute the business and represent the company. Godo Kaisha is similar to a limited liability company (LLC) in the U.S., combining the limited liability of the investors with a flexible management structure. However, it should be noted that it differs from U.S. LLC in terms of tax law since U.S. LLC is subject to pass-through taxation while Japanese LLC is subject to corporate taxation.
Unlike Godo Kaisha, in which the owners (investors) manage the company, Kabushiki Kaisha, in which ownership and management are separated, can invite excellent managers from outside the investors, and can raise funds from a wide range of investors. Furthermore, while Godo Kaisha requires the consent of all members when transferring equity, a stock company can transfer shares relatively easily. For this reason, start-up companies seeking to raise a wide range of funds, conduct M&A, go public, etc., often choose a Kabushiki Kaisha.
A topic of the next column is “Status of Residence in Japan and Visa for Foreign Nationals.
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