Types of Japanese companies owned by foreign enterprises

when the set up company in japann, the factor that many people are interested in is choosing the type of business that suits the needs and capabilities of the owner. In order for the business to run smoothly in the future, the owner needs to clearly understand the characteristics, advantages and disadvantages of each type.

The following article by Global Links Asia will provide an overview of the popular types of Japanese businesses today, thereby helping readers better understand the characteristics of each type to make the right decision when establishing a company in Japan.

1. Representative office

Normally, opening a representative office is considered a preparation step for foreign enterprises planning to open branches and subsidiaries in Japan.

Representative offices perform the functions of liaison offices, carrying out activities such as market research, providing information and supporting businesses in accessing new markets and partners.

A representative office is the simplest form for foreign companies that want to conduct market research, liaison and trade promotion activities in Japan without conducting formal business transactions. 

Representative offices do not have independent legal status, and cannot carry out profit-making activities such as selling goods or entering into commercial contracts.

1.1. Advantages

• Simple establishment procedures, no need for formal registration with Japanese legal authorities.
• No capital requirements or complicated tax obligations.
• Suitable for companies that want to research the market and find business partners in Japan.
• No corporate income tax.

1.2. Defect

• It is not possible to conduct direct or profitable commercial transactions in Japan.
• No independent legal entity, thus limiting the scope of operations and legality.
• Restrictions on operations and financial management.

2. Branch

For businesses that want to conduct a large number of transactions in Japan, the simplest method is to establish a branch. A branch in Japan will not have legal status, so the parent company abroad will be responsible for all debts and credits (if any) of the branch in Japan.

2.1. Advantages

• Can fully conduct business activities and sign commercial contracts in Japan.
• No separate charter capital required.
• Lower maintenance costs than setting up a subsidiary.

2.2. Defect

• Without independent legal status, the parent company must bear full legal and financial responsibility.
• Branches must conduct business and provide similar products and services to the parent company, not operate independently.
• All financial activities and tax responsibilities are tied to the parent company.

3. Subsidiaries

A subsidiary exists independently of the parent company, so all debts and credits of the subsidiary will be the responsibility of the subsidiary itself.

A subsidiary is an independent legal entity established and owned by a foreign parent company. The subsidiary can operate fully in Japan like a domestic Japanese company, including conducting commercial activities, concluding contracts, and managing finances independently.

3.1. Advantages

• Independent legal entity, minimizing legal and financial risks for the parent company.
• Freedom to conduct all business activities in Japan, including product and service development.
• Easy to apply for business licenses in Japan.

3.2. Defect

• The incorporation procedure is more complicated, including charter capital requirements and strict regulations.
• Maintenance costs are higher than representative offices and branches.
• Must fully comply with tax and legal regulations as a domestic Japanese company.

By law, foreign enterprises wishing to establish a subsidiary in Japan can choose one of the following types:

• Joint Stock Company (Kabushiki Kaisha – KK).
• Limited liability company (Godo Kaisha – GK).
• Unlimited Liability Partnership (Gomei Kaisha).
• Limited Liability Partnership (Goshi Kaisha).

However, unlimited liability partnerships and limited liability partnerships are rarely chosen by businesses due to the high liability requirements from capital contributors.

Joint stock companies and limited liability companies are two types of Japanese enterprises that many investors are currently looking for when they want to establish a company in Japan thanks to their advantages in reputation with Japanese partners and customers and the ability to carry out a variety of business activities.

• Joint Stock Company (KK) and Limited Liability Company (GK)
• The minimum charter capital for both types is 2 Japanese Yen.
• Businesses can convert KK to GK and vice versa, but the process is quite complicated.

4. Should you establish a branch or subsidiary in Japan?

For investors who intend to do business in Japan for a long time, branches and subsidiaries are the two most optimal types of Japanese enterprises. The following table shows some comparison criteria for your reference, from which you can choose the type that best suits your needs and capabilities.

5. How does GLA support businesses to open companies in Japan?

Global Links Asia, with experience in consulting and supporting the establishment of a company in Japan, will support businesses in:

• Consulting on suitable company types, helping businesses optimize business operations in Japan.
• Support companies in Japan to comply with laws and annual requirements legally, accurately and effectively.
• Tax, accounting and financial reporting services according to Japanese standards with optimal cost, accuracy and compliance with the law.
• Register to open and authenticate a bank account with a physical bank in Japan or open an account with a licensed digital bank in Singapore, the US, or Hong Kong.

 6. Frequently asked questions when opening a company in Japan

Highlights

• The best type of company is to open a domestic company (subsidiary) for investors who intend to do business for the long term.
• GK Limited Liability Company in Japan is a good choice for small businesses or startups, working regularly with foreign companies with simple procedures and flexible charter capital.
• Joint stock company in Japan - GK is a good choice if the company has high investment capital, requires capital raising and works with Japanese companies regularly.
• Representative offices are suitable for market research activities, but cannot conduct direct commercial transactions.
• GLA will support you to establish and operate a company in Japan effectively, sustainably, legally and quickly, from opening a company, tax accounting to opening a bank account.