Establishing A Kabushiki Kaisha in Japan
Jul 28, 2021
The joint-stock corporation (Kabushiki Kaisha, hereinafter referred to as “KK”) is currently the most popular corporate form in Japan. It is essentially equivalent to a normal corporation (“C-corporation) in the US.
A KK is owned by shareholders, who invest into the KK, but have liability limited to the amount of their investment. Shareholders are not involved in the day-to-day operations of the KK. Instead directors are responsible for the KK’s operation (although a director may also be a shareholder).
Thought it is a form of company intended to be suitable for a large scale entity, many KK’s have few shareholders and a small value of capital.
Procedure for establishing a KK
There are two different methods of creating a KK. One is the promotive incorporation (hokki-setsuritsu) whereby the total number of shares being initially issued is taken up solely by the promoters. The other is the subscriptive incorporation (boshyu-setsuritsu) whereby the promoters take only a part of the shares being issued initially and the remainder is offered for subscription.
Incorporation of KKs tends to be made as promotive incorporation rather than as subscription incorporation, because subscriptive incorporation requires additional procedures such as the offering for subscription and allotment of shares to other persons and the convening of an establishment meeting of subscribers.
The incorporation of a company requires at least one promoter. There is no restriction as to the qualification of a promoter, but the promoter must affix his or her signature to the articles of incorporation and subscribe to at least one share. He or she may cease to be a shareholder by selling his shares after incorporation. Corporations and foreigners may also act as promoters.
Here, we give a more detailed explanation of the procedures required of promotive incorporation.
Determining the kind of Kabushiki Kaisha you want to incorporate
Before applying to incorporate a KK, it is first necessary to determine its profile. The Legal Affairs Bureau requires that this profile contain basic and essential information about the KK. For example, the name of the KK, the amount of shares, the value of the shares and its business objectives should be included.
Searching for similar corporate names
A corporate name must be provided for in the articles of incorporation and be registered. The corporate name must be expressed in Japanese characters, but a foreign language translation of it may also be provided for in the articles of incorporation.
As it is illegal to register a corporate name similar to one already registered by another company engaging in the same kind of business activities within the same ward, it is essential that you confirm the non-existence of the registration of similar corporate names before filing an application for registration of your company. This can be done at the Legal Affairs Bureau.
Obtaining the parent company’s registration certificate
If a parent company is creating a KK as a subsidiary, then it is necessary to obtain their registration certificates before applying for incorporation.
Affidavits regarding the profile of the parent company and affidavits regarding signatures of representatives of the parent company must be prepared and attested to by a public notary in equity participants’ own countries.
IMPORTANT NOTE: In Japan, one’s identity is evidenced by name and seal impressions rather than by signature. Both a seal impression can be registered and a Certificate of Registered Seal obtained at the local municipal office. A registered seal is called a “Jitsu-in.” The registered seal and Certificate of Registered Seal of each Promoter are required. The corporation itself also needs a registered seal.
Drafting the articles of incorporation
The articles of incorporation are the important documents that determine how the company will be managed. Think of it as your company’s rulebook.
Articles of incorporation list “absolute matters” and “relative matters.” Absolute matters are matters that must be stated for the articles of incorporation to be valid, and relative matters are matters that do not have legal effect unless stated in the articles of incorporation.
Purpose, trade name, place of principal office, value or minimum amount of assets contributed at time of incorporation, name and address of each promoter.
Main relative matters
Names of persons contributing in kind, assets to be contributed, value of the assets, and number and type of shares assigned therefore; assets to be taken over after the coming into existence of the corporation, value thereof, and name of transferor; incorporation expenses incurred by the corporation; appointment of auditor(s); establishment of board of directors; rules on payment of dividends of surplus
Notarization of the articles of incorporation
The articles of incorporation of the KK become enforceable only after notarization by a Japanese notary public.
Subscription by the promoter(s) of all the shares and payment of subscription money
Contributions should, in principle, be made in cash. The promoter(s) (and only the promoter(s)) are allowed to contribute in kind, in lieu of cash. Such contribution in kind must be provided for in the articles of incorporation in the provision relating to anomalous incorporation, and, except certain cases, is subject to inspection by examiners appointed by the court. In practice, contributions in kind are rarely made because the appointment of examiners and inspection by them are such time-consuming procedures.
All payments in cash for subscriptions must be made at the bank for handling payments which has been selected by the promoter(s) and a commission of share subscription handling has been filed. The bank is obliged to hold on deposit of the total sum of subscription payments pending the completion of registration of the incorporation of the company, and a certificate of holding subscription money issued by the bank must be attached to the application form for registration of incorporation.
Election of directors and statutory auditor(s)
In the case of a promotive incorporation, directors and statutory auditor(s) are elected by the promoters. In this case the directors and statutory auditor(s) are obliged to investigate the process of incorporation, such as the subscription to and payment for shares by the promoter(s).
A company must have at least one director, and provision may also be made in the articles of incorporation for the appointment of a board of directors, accounting councilor (a certified tax accountant or CPA who prepares financial documents in association with the director(s)), auditor, board of auditors, accounting auditor (CPA or auditing corporation) and so on. However, there are restrictions on a KK’s structure depending on its size and whether its shares are publicly traded:
- A company with a board of directors must appoint an auditor (unless it is a company with committees). However, this does not apply if it has appointed an accounting councilor and is not publicly traded.
- A company with an accounting auditor must appoint an auditor (unless it is a company with committees).
- A company with committees cannot appoint an auditor.
- A company with committees must appoint an accounting auditor.
- A large company that is not a publicly traded company must appoint an accounting auditor.
- A company that is a publicly traded company, a company with a board of auditors, or a company with committees must appoint a board of directors.
- A large company must appoint a board of auditors and an accounting auditor (unless it is not a publicly traded company or is a company with committees).
Examination of the establishment procedures
The directors and auditors must examine the establishment procedures and determine that these comply with the law.
Registration of incorporation with the legal affairs bureau
An application for registration of incorporation of the company is filed by submitting an “Application for Registration of Incorporation” together with the relevant attachments.
In the case of a promotive incorporation, within two weeks of the day following the day when the directors and statutory auditor(s) completed the investigation of the process of incorporation is the application due date.
Upon completion of the registration, a firm becomes a legal entity and may commence business.
Acquisition of registered information certificate (including company seal)
Once registration of establishment has been completed for a Japanese branch office or a subsidiary company, a certificate on registered company information can be obtained from the Legal Affairs Bureau. The certificate on registered company information is a document officially certifying a company’s registered information.
The certificate on registered company information must ordinarily be presented whenever opening a bank account, filing notifications with administrative authorities, purchasing assets for which name registration is required (real estate, securities, vehicles, telephone lines, etc.), and concluding important agreements with business partners.
Application for a bank account
It goes without saying that a new company will need to open a new bank account in its name.
Notification to the Bank of Japan concerning acquisition of stock
Foreign investors who intend to make direct domestic investment must file either a subsequent report or prior notification thereof, as the case may be, with the Minister of Finance and the competent Minister(s) in charge of the industry concerned (via the Bank of Japan). It is expected that in most cases a subsequent report is sufficient.
When prior notification is required a Notification concerning Acquisition of shares/equity must be filed with the bank of Japan within a period of 3 months prior to the date when application for registration of incorporation is proposed to be made. It is necessary for the specified waiting period relating to such notification to expire before funds for payment of the subscription may be remitted to Japan from abroad. Within 30 days of the incorporation of the company, a Report concerning Acquisition of Shares (Equities) must also be filed. When a foreign investor is a non-resident, this filing must be made by his attorney-in-fact resident in Japan.
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