How to Incorporate in Japan

Once the bastion of all things shiny and great in economics, Japan suffered in the Asian financial crisis, a sequence of currency devaluations and other events starting in the summer of 1997. Yet, even with the region collapsing around it, the growth in Japan's real GDP per capita has outperformed that of every other major economy in the last two decades.

Prime Minister Shinzo Abe's platform of economic reforms ' known as Abenomics, they include aggressive monetary and fiscal policies combined with structural reforms ' have now entered their third phase and the country is enjoying improving employment, strong household spending, a low inflation rate, and resilient corporate profits and capital investments.

And with a new Imperial era upon us, with Crown Prince Naruhito now on the throne following his father's abdication and the 'Reiwa' or 'Beautiful Harmony' period in full swing ' and with the Tokyo 2020 Olympics almost here ' Japan is proving increasingly popular for both domestic businesses as well as foreigners looking to move into the growing market.

What can Japan offer a new business?

Japan has been an attractive business destination since the mid-20th century, with its drive into the technology and automotive industries putting Japanese products into the households of people across the world. Don't forget, this is the world's third-largest economy (after the US and China) and the second-largest computer and telecommunications market in the world. Its consumers have high levels of disposable income, and are drawn to premium goods and services.

Prime Minister Abe makes no secret of the fact that he wants to lead Japan back to its place as the regional leader, which means that businesses incorporating in Japan are tying their growth to that of the country. And that is understandable, as we're talking about a country that has a highly competitive market, is known for its dedication to technological innovations, and has a very intelligent, educated and dedicated workforce.

However, according to Export To Japan, new businesses must also be aware of the challenges of breaking into the market. It has complicated distribution channels, a high concentration of domestic competitors and a unique business culture. So, when considering how to incorporate in Japan, ensure you do your research and are ready and able to face those challenges.

How easy is it to incorporate in Japan?

The World Bank's Doing Business rankings, the result of an annual global survey of various business parameters in most world economies, has Japan sitting at No. 39 globally for ease of doing business ' but incorporating is less straightforward; the island nation sits at No. 93 for starting a business. To start a business in Japan, you will need to have a paid-in minimum capital requirement of JPY 1. Incorporation includes around eight separate procedures ' defined as any interaction of the company founders with external parties such as government agencies, auditors or notaries ' with a median duration of 11.5 days.

The most common business type in Japan is a g?'d?' gaisha ('''''剺''''), or godo kaisha, abbreviated as GK, which is modeled after the American limited liability company (LLC). This company type was introduced by the Companies Act and became effective on May 1, 2006. In this form, each investor (known as a member) may provide a capital contribution in the form of money or property only. The other company type is typically a kabushiki gaisha (ʆ'º艺'''', or 'KK'), which is akin to a joint stock company, though it's also possible to register a branch office in Japan.

Once members sign the articles of incorporation ('''ʨ' or teikan), the articles and corporate seal must be registered with the Legal Affairs Bureau, after which the company can open a bank account, seal contracts and engage in other activities as a legal entity.

There are no stipulations on nationality of investors in Japan, and recent legislative changes mean non-residents are legally free to incorporate in Japan. However, practical matters like opening a bank account can be easier if you have a Japanese national as director.

How to incorporate in Japan, step by step

June Advisors Group ' a visa support and business consulting group in Japan ' lists the procedures to incorporate in Japan as follows:

• Find an office address.
• Prepare the Articles of Incorporation (teikan).
• Get those articles notarized if setting up a KK.
• Deposit capital. This can be a tricky step, as you can't open a company bank account until incorporated, so you may need to use the personal account of an investor.
• Prepare the documents for the company's registration, including the company seal, and a letter of agreement from directors assuming their office.
• File the application for company registration and pay the associated fee.
• The registration now complete, obtain the registry and company seal certificates so you can start operations.
• Finally, consider the steps for business as usual compliance, such as looking into tax and social insurance obligations, workforce matters and so on.

Compliance doesn't stop with incorporation

Of course, once the company has been incorporated in Japan, it then moves into business as usual ' but Japan's business law is notoriously hard-lined while its culture demands careful attention and respect. While Abenomics does introduce economic reforms, it also means the government and the Bank of Japan are closely monitoring and influencing market forces. For example, the Companies Act was amended in 2015 to create new eligibility requirements for outside directors to increase their independence from company management, and an additional rule in the Corporate Governance Code that same year effectively requires that listed companies should appoint at least two independent outside directors.

Before you follow the steps for how to incorporate in Japan, it's worth closely researching the regulatory compliance and governance burden expected of companies in Japan to ensure your governance framework is set up and ready to cope with local expectations.

Using technology to help manage a Japanese entity

One way to keep on top of developing regulatory requirements and the compliance burden in Japan is to use a technology platform like entity management software to keep entities operating according to local regulations.

Entity management software, such as Diligent Entities, helps organizations to centralize, manage and effectively structure their corporate record to improve entity governance. This, in turn, helps to better ensure compliance, mitigate risk and improve decision-making through an integrated governance solution. Automated electronic filing ensures no compliance deadlines are missed, while the cloud-based central repository and workflows ensure the right information can get to the right people at the right time in order to complete routine business processes.

Once you've worked out how to incorporate in Japan for your specific business, get in touch and schedule a demo to see how Diligent Entities can help keep your Japanese entities operating in good standing.