Starting a business
The 5 minutes guide to Company formation in Japan
“Should I set up a company?” is the question that always irritates startup wanna be and overseas companies.
I still remember the time when we ran into a world-class top-ranking consulting company to consult. They ask for USD 20k for consulting while doing a self-introduction and a few chit chat.
There is also many local service firm that provides one-stop service, so it is good to explore more that best meet your requirements. In some condition, these world-class consulting firm are the best match. I have quite a number of experiences using a local consulting firm, local C.P.A., local accountant, and even doing myself on the companies I helped formed and my startup. Which one to choose for help widely depend on the business size and objective.
Before showing you the best way, I want to share the following frequently asked questions which I think the most important things need to clear:
- Do I need a company?
- The benefit of K.K., L.L.C. and individual business
- How much do I cost to set it up?
- How is the operation for 1st year?
Do I need a company?
When most business can do with individual lawfully, people used to think about whether they need it or not. A company is a legal entity, let’s say a virtual person. The company has legal rights and obligations; it exists by the company constitution, and liability can be limited to manage risk. Liability is something like you use a service and have to pay the bill. The smallest risk is you don’t have any income; the most vital risk is bankruptcy. By doing business, there can be any size of risk in between the two points.
A company is a legal entity, with rights and obligations.
Being a legal entity is something like making a mistake working with the company; you can leave the blame with the legal entity without hurting your private life.
Another good point about using a company is in most business deal; there is a requirement of a legal corporation. There is a high chance that Japanese companies don’t do any business with individuals, except professional services like C.P.A., translator, or entertainment. So for the most case, the minimum requirement is they need you to be a legal entity to sign the contract.
The benefit of the company to individual
Significant benefits of a registered company are easier to get trust from customers, easier to get financing from a bank or investors, and more items to write off as “expense” to evade heavy income tax and reduce risk by limiting liability.
The merit and demerit of using a company largely depend on the nature of your business and the market your product fit into. So I leave this part and completely assume you want to set up a company.
Registration process
For easy understanding, it can be broken down into three parts
- The master plan, drafting the company constitution (Teikan)
- company seal, director’s documentation
- submission
Type of Company: Corporation or L.L.C.
There are four types of companies, but I will explain two where the majority prefer. “Kabushiki Kaisha”, written in English as K.K., is a Corporation type, has more responsibility and liability. Before company law revised, it needs at least two directors, but now can be a minimum of one director.
Company Office
An office address prefers to be an office building for respect, but it can be a residence. If you use a rental room, you need to check with the owner whether they agree to use the property for the company registered address. In some cases, there is a fee need to pay for using in company registration.
All K.K. need an end of year report, where most of the company may use C.P.A. services.
Company Constitution
The Company Constitution (Teikan) is the basic rule and regulation that defined everything for the virtual legal entity to exist. This company’s statute may include information such as the name and address of the company, type of business it will carry out, financial report standard, amount of capital, share structure, directors, and their address.
Capital
This is the amount you need to invest in at the company constitution. In the old days, for Y.K. company type minimum investment is 3 million yen, and K.K. is 10 million yen. However, after introducing the New Company Law in 2006 May, the minimum investment is 1 Yen, but small business usually registers with 3 million to 5 million for the sake of getting trust. Moreover, for the creditor protection measure, the capital should be at a reasonable amount with financing.
Financial Year
The companies are responsible for reporting to the tax office every year. In Japan, the company’s financial year can define as any month throughout the year; it doesn’t need to be the same as the calendar year or government budget year.
Your seal, not signature
Japan use a seal, not a signature on official documents, and you have to register your seal at the ward office for authentication. As a preparation process for company registration, regardless of nationality, need to get a registered seal certificate for every director from their respective ward office. Any official certificate documents have a validity of 3 months from the date of issue.
Seal for the company
This seal represents the company president and you have to register the seal with the company registration office. The register is different from your personal seal registration. Rubber stamp is not allowed; it must be on hard material. With 7000 yen, you can get a decent one made with plastic, where wood, ivory or platinum are alternatives. For a corporate bank account, it also needs a seal. It can use the same company seal, but it is wise to keep a separate banking seal.
It seems like that everything is in place, then let’s go submission.
Submission
When all documents are ready, go and submit them at the city legal affair bureau. Since government give incentive for digitalization, if the registration of the company’s statute is submitted online, it saves revenue stamp about yen 40,000 from the submission in the paper. The procession fee of yen 50,000 was not necessary for the case of L.L.C.
Getting the certificate
Usually, after one week of successful submission and fee-paying, the company registration will be approved. After that, the company registration certificate can request any copy with the fee of yen 600 at the city legal affair bureau counter or yen 500 online. The validity of the document is three months from the date of issue.
What to do next after registration?
Open a corporate banking account. As a company, you cannot use your personal account for accepting product and service payment from clients.
New company have to notify city tax office, where you are obliged to submit a financial report every end of the financial year onwards. Moreover, for insurance and pension matter, notify the National Pension office about company formation. Make sure in the first year you still have plenty of time to focus on your main business.
Last but not least, you want to let your potential customers, clients, suppliers, family and friends know about the good news.
You got a new Company!
