Formation of Foreign Companies

Founding a company

There are four types of companies: a joint-stock corporation (Kabushiki-Kaisha), a limited liability company (Godo-Kaisha), a limited partnership (Goshi-Kaisha), and an unlimited partnership (Gomei-Kaisha). When a foreigner or foreign company establishes a subsidiary in Japan, they generally establish a joint-stock corporation or limited liability company. There are two ways to establish a joint stock corporation: (1) the founder takes over all the shares issued at the time of the company’s establishment, (2) shares are offered to other people. In most cases, a corporation will be established in the former way.

Establishment is possible even if all representative directors are non-residents

 Foreign officers (non-residents in Japan) can also serve as officers of the company. Nationality does not matter. A company can be established even if all representative directors live overseas, so it is possible to establish a company with only one foreign resident.

Determination of basic matters for the newly formed company

 The first step in establishing a company is to determine the basic matters of the subsidiary. Specifically, the name of the subsidiary, the location of the subsidiary’s head office, officers, business purpose, amount of capital, directors and representative directors, whether or not a board of directors is established, the term of office of the directors, the issue price of shares, and restrictions on share transfer.

Regarding restrictions on trade names

It is permitted to use Roman letters, Arabic numerals, 「＆」「’」「，」「－」「．」「・」 in the trade name, but you must use names such as stock companies and limited liability companies. Also, spaces are only allowed when writing multiple words using Roman letters, and cannot be used between katakana words.

Japanese notation for foreign officers

When a foreigner is registered as an officer, the foreigner’s name will be registered in katakana notation instead of alphabetical notation. It is therefore necessary to understand exactly how to read the name of the foreigner by listening to how it would be said over the phone and clarifying how to write it in katakana. If an alien who has a resident card or seal stamp registered in Japan becomes an officer, in principle, he or she will be registered in katakana notation as described in the resident card.

Prior Examination of whether the business is subject to advance notification under the Foreign Exchange Law 

When a foreign investor invests 1% or more and establishes a Japanese subsidiary of a foreign company, it falls under “Forward inward investment, etc.” under the Foreign Exchange Act, and in most cases a posterior report is required via the Bank of Japan, who will submit a follow-up report to the ministries and agencies responsible for the new company’s business in Japan. Prior notification is required depending on the type of business. In this case, for 30 days from the date of receipt of the notification to the BOJ, the ministry concerned with the business will conduct an examination and the application for company registration will be prohibited until this is complete.

Consideration of approval

Depending on the type of business, it may not be possible to do business in Japan without approval. Please note that if you neglect to do this if it is an industry that requires a license, you may be subject to business suspension and criminal penalties.

Preparation of Articles of Incorporation

The articles of incorporation must be prepared in Japanese based on the determined basic matters and certified by the notary public’s office. It is safe to consult with the notary public’s office in advance and confirm that the content of the articles of incorporation is satisfactory. In the articles of incorporation, agree that there is no representative of a foreigner or foreign corporation that is the originator, by means such as a signature, abandonment sign, a signature on a bag, a signature in the margin (or fill in the initials). It is necessary to clarify what you have created.
It is necessary to clarify that the legal agreement was created so that there is no representative of the foreigner or foreign corporation that is the originator, by means of, for example, a signature, an abandonment sign, or a signature (or initials) in the margin.

Making an affidavit

When establishing a Japanese company, if the founder is a corporate body, it is necessary to submit the registration certificate of the founding corporation and the seal stamp certificate of the representative when certifying the articles of incorporation. Foreign companies do not have a register copy or seal registration system, so prepare an affidavit to replace the registration certificate or a signature certificate to replace the seal certificate and submit it to the notary public. The affidavit is based on the registration certificate, articles of incorporation, establishment certificate, etc. and can be prepared in the country of origin, with the business name of the foreign corporation, head office location, business purpose, number of shares and amount of capital, name of officer, etc. It is created by entering the same items as those listed in the certified copy of the Japanese registry, such as the address.

Declaration of the effective head of the company

When certifying the articles of incorporation at the notary public office, it is now a requirement to submit a declaration regarding the effective head of the newly established company. When establishing a company, it is required to submit it for the purpose of increasing the transparency of the company by making clear the head of the company and preventing unauthorized use of the company by gangsters and terrorists. Specifically, a notary public that certifies the name, residence, date of birth, etc. of a person who should become a substantial head when a corporation is established and whether the person is a gangster or an international terrorist is certified by the articles of incorporation. 

Certification of articles of incorporation

Once the original documents have been sent from your home country, you will be required to go through the procedures for certification of articles of incorporation at the notary public office in Japan. If the originator is a foreign corporation, the representative of the home country cannot go to the notary public office in Japan, so an agent will go to the notary public office as an agent administrative scriveners are likely to be the agents who certify articles of incorporation.

Payment in capital

After certification of articles of incorporation, one will proceed to the procedure for the payment of capital. The capital must be paid to the relevant account without excess or deficiency. In principle, the payment destination of the investment is the founder’s account in Japan, but if you do not have an account in Japan, you can pay to the deposit account in the personal name of the director at the time of establishment. In addition, only in the event that all of the founders/directors at the time of establishment do not have an address in Japan, payment can be made to a deposit account of a third party other than the founders/directors at the time of establishment (for example, a lawyer or judicial scrivener acting on behalf of the establishment procedure). In each case, the founder or third party must attach a power of attorney to the director at the time of establishment.

Appointment of officers and creation of the decision maker

After the articles of incorporation are certified, directors, representative directors, corporate auditors, and other officers will be appointed, and a decision-maker for the founder and a consent form for appointment will be prepared. In addition, when investing not only money but through other means (such as stocks and commodities), it is necessary to investigate the legality of the establishment procedure by directors and corporate auditors and prepare a report thereof.

Application for registration

 After certification of articles of incorporation and payment of capital, you must apply for registration at the Legal Affairs Bureau, which has jurisdiction over the head office of the new company. The date of application for registration (the date received by the Legal Affairs Bureau) is the date of establishment of the company. Required documents for registration application include registration application, certified articles of incorporation, officer’s approval letter for office, officer’s seal certificate, and a document certifying payment of capital.

Submission of follow up report based on the Foreign Exchange Act

If advance reporting based on the Foreign Exchange Law is not required, it is necessary to submit a follow up report to the Bank of Japan within 45 days of the company being established. In the case of a funded company, you will need to submit this report for almost all cases.

In the case of recruitment establishment

In the case of the establishment of offering, the founder will underwrite at least one share and invest, but after determining the offering conditions with the agreement of all the founders. In response, the person who wants to subscribe for shares will apply, and the initiator who receives the application will allocate shares to the applicant.
After that, the stockholder will pay the full amount paid. When the payment has been made in full, the originator will ask the financial institution to issue a payment storage certificate. In addition, we will prepare additional necessary documents such as notification of the stocks offered at the time of establishment and issuance of a stock application certificate. In the case of establishment by offering, it is necessary to hold a founders general meeting after the payment of the shares offered at the time of establishment has been made, and the directors at the time of establishment must resolve matters concerning the establishment of the company.

Expenses for establishing a stock company

The costs for establishing a company are as follows: 

Notary fees for certification of articles of incorporation	50,000 yen
Stamp duty	40,000 yen
Registration license tax	150,000 yen
Seal making cost (excluding exemption tax)	30,000 yen
Transportation and miscellaneous expenses (excluding consumption tax)	10000 yen
Lawyer fee (excluding consumption tax)	500,000 yen
Total	780,000 yen

Procedure of establishment of Godo-Kaisha

In the case of a GK, certification of articles of incorporation is not required. In addition, it is necessary to pay the full amount of money for investment at a joint-stock company (Article 578 of the Companies Act), but it is not necessary to pay the investment to a bank account as in the establishment of a stock company, but directly to the company. It is possible to deliver cash, and would be fine to attach a receipt issued by the employee as a document proving payment.

Appointment and registration of professional duties

When establishing a limited liability company, it is necessary to determine the purpose, business name, head office location, employee names and addresses, representative employee names and addresses, etc. of the limited company established in Japan. In the case of a limited liability company, the corporation can be an employee or an executive employee (representative employee of the limited liability company), but if the corporation is an executive employee, the duties of the employee who executes the relevant business should be performed. It is necessary to appoint a person (executor of duties) and register the name and address of the person who performs duties (Corporate Law, Article 912, Paragraph 1, Item 7).

Certification of registration of executive officer (representative employee)

When a corporation becomes an executive employee (representative employee), the registration certificate of the corporation that is the employee is required. When a foreign corporation becomes an executive employee (representative employee), the registration certificate of the foreign corporation is required. If you cannot obtain the registration certificate of a foreign corporation, you need to make an affidavit.

Notification to tax office after establishment of subsidiary

If you have established a Japanese subsidiary of a foreign company, you must submit a corporation establishment notification form to the tax office that has jurisdiction over the location of the corporation within two months of the date of incorporation.

Notification of establishment of salary payment office

 If you want to pay salaries to employees or officers in Japan, you must submit a notification form for opening a salary payment office. These notifications are also required when paying officer compensation to representative directors and other officers.

‘Blue form tax return’ declaration approval application

 If you establish a Japanese subsidiary of a foreign corporation, you must file a tax return. If you receive preferential tax treatment, it may be preferable to submit a blue return approval application. You must also submit an application for approval of special withholding income tax due dates. In addition, it is also necessary to submit a corporation establishment notification form to the metropolitan tax office and municipalities.

Reporting to the Labor Standards Inspection Office

If a corporation established in Japan hires employees, you will need to apply for labor insurance. There are two types of labor insurance: (1) worker’s accident insurance, which covers workers’ illnesses, injuries, and death during work, and (2) employment insurance, which covers workers’ unemployment and company bankruptcy. For labor accident insurance, we will report it to the Labor Standards Inspection Office, and for employment insurance, we will submit the necessary documents to ‘Hello Work’.

Reporting to ‘Hello Work’

Even if you hire only one employee, you are required to take out employment insurance. Within 10 days of hiring, it is necessary to submit a notification of establishment of an office to which employment insurance is applied and a notification of acquisition of qualified employment insurance.

Reporting to the Social Insurance Office

When an employee is first hired at a business establishment which has social insurance, it is necessary to submit a new health insurance/welfare pension insurance application notification within 5 days after the hiring. One must also submit a health insurance/employee pension insurance qualification acquisition report. In addition,if the spouse of the health insurance dependent (transfer) and the spouse of the insured (employee) are dependents, you must submit the National Pension No. 3 Insured Qualification Notification.