If you are looking to do business in Japan you will have to setup some type of legal presence.
Under Article 818 of the Companies Act, foreign companies that wish to establish a business presence in Japan must register one of the following: (1) a representative in Japan, (2) a branch office in Japan, (3) a Japanese corporation, or (4)a partnership.
When most foreign companies first start doing business in Japan they generally establish themselves in one of three modes.
In order to enable foreign companies to do conduct operations in Japan, a representative office may be established. These offices allow for preparatory and supplementary tasks such as conducting market surveys, advertising, and purchasing goods. The office may not, however, participate in sales activities. A representative office also cannot normally open bank accounts or lease real estate in its own name. The head office of the foreign company or the representative at the representative office in an individual capacity must sign such agreements instead. Registration of representative offices is not required.
Of the four methods above, a branch office is considered to be the simplest method of establishing a base of business operations in Japan. This is because business tasks can begin at a branch office as soon as an office location is acquired, required information is registered, and a branch office representative is chosen.
Ordinarily, a branch office will not partake in independent decision making, and will rely on an organization authorized by the foreign company for decisions. In addition to this, a branch office inherits the corporate status of the foreign company, and therefore does not have its own legal corporate status. This means that all debts and credits made by the branch office are generally the responsibility of the foreign company. Unlike representative offices, a branch office may open bank accounts and lease real estate in its own name.
A subsidiary company is a separate entity from the foreign company, and thus the foreign company will bear the liability of an equity participant for all debts and credits created by the subsidiary. In order to establish a subsidiary, the required procedures must be followed and the the corporation registered. When forming a subsidiary company, the foreign company must first choose between establishing the subsidiary as either a joint-stock corporation (Kabushiki-Kaisha (K.K.) or a limited liability company (Godo-Kaisha (G.K.).
Joint-stock corporations and limited liability companies are alike in that liability is restricted to the assets contributed by equity participants. Limited liability companies, however, have greater freedom of self-government through their articles of association compared to joint-stock corporations. This means that they may stipulate the procedures for preparing and approving their financial statements in their articles of association as there are no laws and regulations relating to the completion of annual financial statements and do not have to publish their financial results. “Managing partners” may be appointed in limited liability companies, due to their articles of association.
In future posts we will be looking at the processes, costs, pros and cons of each of the above options.