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Ordinarily, a foreign enterprise enters the Japanese market using one of the following 4 corporate structures:

1. Representative office
2. Branch (in Japanese legally known as “Gaikokugaisha no nihon ni okeru eigyousho (a business office of foreign company in Japan)” hereinafter called “Branch”.
   Under the Japanese Corporate Law there are 2 types of branches; those which have a business office in Japan and those which do not. Branch in this pamphlet shall mean a branch which has a business office in Japan. )
3. Corporation (Japanese Corporate Entity)
4. Limited Liability Partnership; LLP

1. Representative Office

In general, a foreign enterprise is free to establish a representative office in Japan for the purpose of collecting and providing information. As such, no permission, notification or registration is required for the establishment of such an office under the Foreign Exchange and Foreign Trade Law (hereinafter “Foreign Exchange Law”). Since the representative office can not conclude contracts, it is therefore not subject to Japanese corporate tax.

If any representative office in Japan intends to conduct activities other than those listed in the above chart, it must, regardless of its title, implement the procedures necessary to establish a branch or a Japanese corporate entity.

2. Branch

(1) Branch Registration

When a foreign company intends to engage in business on a continuous basis in Japan, it is necessary to appoint a representative in Japan and to have such person registered, as specified in Article 817 and Article 818 of the Corporate Law. Many foreign companies intending to conduct business with Japanese companies establish a business in Japan, which is generally registered as a branch in Japan. This registration enables the applicant to obtain a commercial register certificate from the Legal Affairs Bureau, which is evidence of existence as a corporate entity in Japan and makes it possible to open a corporate bank account at a commercial bank.

To apply for registration of a branch, Article 129 of the Commercial Registration Law requires the following documents to be submitted:

1. Document evidencing the existence of the applicant’s head office (such as a certified copy of the commercial register in the home country)
2. Document certifying the competency of the representative in Japan
3. Articles of incorporation of the applicant or such documents as are sufficient to show the business objectives of the applicant
4. Document certifying the method of public notice as a foreign company, if such a method exists

The above documents must be attested to by the competent authorities, such as the consul residing in Japan or a notary public of the applicant’s home jurisdiction, etc. It is also possible to apply for registration with such documents attested to by the competent authorities, by affidavit or the like, describing the information required in “1)” to “4)” above.

Registered Branch Manager (Representative in Japan) represents the branch and is authorized to conduct business with third parties without headquarters’ internal approval. However, a change of registration, such as the resignation of Representative in Japan, the appointment of a new Representative in Japan, etc., must be done in each case. Based on the Foreign Exchange Law, “Notification concerning the Establishment of a Branch, etc.” is not required except for the cases where the purposes of the incorporation’s activities include any business that requires prior notification (In the cases where such prior notification is required, “Notification concerning the Establishment of a Branch, etc.” shall be submitted to the Minister of Finance and other competent Ministers through the Bank of Japan within the period of 6 months preceding the date of establishment).

(2) A general flow of procedure for registering establishment of a branch

3. Corporation (Japanese Corporate Entity)

If the foreign enterprise incorporates a Japanese corporation, it is treated as a “Direct Domestic Investment” under the Foreign Exchange Law. The enterprise is required to submit notification of its incorporation to the Minister of Finance and other competent Ministers through the Bank of Japan prior to the 15th (inclusive) of the month that immediately follows the month of the date of registration(prior notification may also be required in some cases).

A law entitled the “Corporate Law” (Kaisha Ho) was passed in the Diet on June 2005 and became effective on May 1, 2006. This law replaces and significantly modifies the Company Law provisions of the Commercial Code.

Under the Corporate Law, companies are broadly classified into two types according to shareholders’ responsibilities and governance. One type is Kabushiki Kaisha (joint-stock company) and the other is Equity Companies (joint-name company/ joint-fund company/ limited liability company).

• A joint-stock company (Kabushiki Kaisha, KK) consists of shareholders whose liabilities to creditors of the company are limited to the amount of stock purchased in the company.
• A joint-name company (Gomei Kaisha) consists of partners whose liabilities to creditors of the company are unlimited.
• A joint-fund company (Goshi Kaisha) consists of limited and unlimited partners. Limited partners’ liabilities to the creditors of the company are limited to the amount of their contribution to the company.
• A limited liability company (Godo Kaisha, LLC), which is a newly introduced entity, consists of partners whose liabilities to creditors of the company are limited. An LLC is similar to an LLC in the US as it combines limited liability for its members with a flexible management structure.

The limited partnership company (Yugen Kaisha, YK), which is a simplified joint-stock company used for small businesses, is abolished and no new YKs can be established under the Corporate Law. However, all existing YKs continue to exist as so-called Special YKs (Tokurei Yugen Kaisha). YKs also can become ordinary KKs through the procedures for change of corporate name.

4. Incorporation of Kabushiki Kaisha (KK) or Godo Kaisha (LLC)

It is necessary to acquire independent corporate status in Japan and to establish the legally required officers (institution) or representatives when incorporating. There are two corporate structures that a foreign investor can assume with limited liability; a joint stock company (Kabushiki Kaisha) and a limited liability company (Godo Kaisha, LLC). The other structures specified in the Company Law are a general partnership (Gomei Kaisha) and a limited partnership (Goshi Kaisha), designed for small-scale companies. However, since Gomei Kaisha and Goshi Kaisha require members with unlimited liability, they seem to be seldom utilized by foreign companies for investments in Japan.

(1) Kabushiki Kaisha

The Corporate Law does not require minimum capital for a KK at the time of incorporation. Accordingly, a KK can be established even with a ¥1 investment. On the other hand, the Corporate Law prohibits dividends distribution unless its net assets are ¥3,000,000 or more.

A KK is classified into Large Company or Company which is not a Large Company (hereinafter called “Small-Medium Company”) by its amount of capital or liability, and Public Company or a Company which is not a Public Company (hereinafter called “Nonpublic Company”) by transferability of stock.

Large Company (LC)	The capital is ¥500 million or more Or total liability is ¥20 billion or more
Small-Medium Company (SMC)	Other than Large Company
Public Company	Transfer of all or part of shares to be issued does not require the company’s consent
Non-public Company	Transfer of every class of shares to be issued requires the company’s consent

Under the Corporate Law, the internal organization structure such as director/representative director, board of directors, statutory auditors and accounting counselor can be more flexibly designed depending upon the type of KK.

(2) A general flow of procedure for registering the incorporation of a joint stock company (Kabushiki Kaisha)

The following is the necessary procedure for foreign investor(s) for establishment of Kabushiki Kaisha. (There are 2 ways, Hokki-setsuritsu and Boshu-setsuritsu, for company establishment stipulated by the Corporate Law. The following outlines the method of incorporation through the Hokki-Setsuritsu; incorporation by subscription of all shares by the promoters.)

(3) A general flow of procedure for incorporation of a limited liability company: LLC (Godo Kaisha)

Because of the legal issues associated with the formation and registration of a Kabushiki Kaisha or Godo Kaisha, legal advice and assistance by specialists should be sought.

5. Limited Liability Partnership: LLP (Yugen Sekinin Jigyo Kumiai)

(1) Features of LLPs

The Civil Code of Japan allows partnerships and partnership agreements, but since the liabilities of partners are unlimited, this format has not been used very much as a system except in certain cases.
In August 2005, the new “Law Concerning Limited Liability Partnership Contracts” was enacted to allow a partnership system of limited liability, wherein the equity participants, or partners, take on business liabilities limited only to the value of their equity participation. The features of this system include free determination through contracts of the management of the internal organization and the distribution of the profits and losses of the business, and also that taxes are levied on equity participants, as these are not companies, but partnerships. Registration is made according to the location of the main office in accordance with certain prescribed rules. However, please note that an LLP cannot be reorganized into a company such as a joint stock company.

(2) A general flow of procedures for establishment of a limited liability partnership: LLP (Yugen Sekinin Jigyo Kumiai)

6. Comparison of a joint stock company, limited liability company (LLC) and limited liability partnership (LLP)*

Structure	Joint Stock Company	Limited Liability Company (LLC)	Limited Liability Partnership (LLP)
Corporate status	Yes	Yes	No
Capital contribution	Stockholders	Members with limited liabilities	Partners with limited liabilities
Legally required organization(s)	General meeting of stockholders, directors	(Consensus of members)	(Consensus of partners)
Executive officer	Representative director, etc.	Executive member	Executive partner
Capital	No restriction on monetary amounts	No restriction on monetary amounts	No restriction on monetary amounts
Equity transfers	Generally free	Approval of members	Approval of partners
Modification of articles of incorporation	Special resolution at a general meeting of stockholders	Agreement of all members	Agreement of all partners
Registration	Yes	Yes	Yes
Taxes levied on member(s)	No	No	Yes
Existence with a single member	Possible	Possible	Not possible
Reorganization into different corporate structures	Possible	Possible	Not possible
Merger with another joint stock company	Possible	Possible	Not possible

• * Joint stock company (Kabushiki Kaisha); limited liability company: LLC (Godo Kaisha:); limited liability partnership: LLP (Yugen Sekinin Jigyo Kumiai)