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Foreign companies generally engage in business operations by establishing a branch office or subsidiary company, and the legal differences between each of these are summarized in the following table.
Table 1-1
Branch office | Subsidiary company | ||
Kabushiki-Kaisha | Godo-Kaisha | ||
Capital | No capital | 1 yen or more*1 | 1 yen or more*1 |
Number of investors | - | 1 or more | 1 or more |
Liability of equity participants/parent company toward creditors | Unlimited | Limited to amount of equity participation | Limited to amount of equity participation |
Transfer of equity participation share | No equity participation share | May be transferred freely in principle. May be stipulated in articles of incorporation that approval of Board of Directors is needed for transfer of shares. | Unanimous approval of equity participants (members) required |
Number of executives required | Representative in Japan. | See Tables 1-2, 1-3 | No legally stipulated minimum. |
Legally stipulated term of office for executives | No legally stipulated term | See Tables 1-2, 1-3 | No legally stipulated term |
Regular general meeting of shareholders (members) | Not required | In principle, must be held every year | Not required |
Possibility of public offer of stock (equity participation share) | No equity participation share | Possible | Not possible |
Possibility of reorganization into joint-stock corporation | Not possible. Need to separately close branch office and register resignation of all representatives in Japan, and establish joint-stock corporation*3 | - | Possible |
Distribution of profits and losses | - | Allocated according to equity participation ratio | May be allocated at a different rate from equity participation rate if specified in articles of association |
Taxation of profits | Income arising within Japan is in principle taxed | Taxed according to profits of joint-stock corporation and profits allocated to shareholders | Taxed according to profits of Godo-Kaisha and profits allocated to participants |
(Note) Regardless of the type of operation, prior notification must be filed with the Bank of Japan if establishing an operation in an industry in which the Foreign Exchange and Foreign Trade Act requires that such notification be filed when making an inward direct investment.
*1 Although establishment with capital of zero yen is theoretically possible, approval is granted ex post facto, and it is not in practice possible to incorporate a company without paying in capital.
*2 When a branch office is to be established in Japan, at least one representative must have an address in and be a resident in Japan. Said address requirement does not apply to a representative member (a person performing duties of such member, if such representative is a corporation) of a Godo-Kaisha on and after March 16, 2015.
*3 See 1.7.1 "Closure of a branch office and resignation of all representatives in Japan".
Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)
(if no nominating committee, etc. or committee of audit, etc. *1 is established)
Table 1-2
Small and medium companies | Large companies | ||||
Kabushiki Joto Seigen Kaisha | Kokai Kaisha | Kabushiki Joto Seigen Kaisha | Kokai Kaisha | ||
Directors | No. | Appointment of 1 or more required. | Appointment of 3 or more required | Appointment of 1 or more required. | Appointment of 3 or more required*3 |
Term | 1 to 10 years. | 2 years | 1 to 10 years. | 2 years | |
Board of directors | Establishment optional. Establishment required if board of auditors is established. | Establishment required | Establishment optional. Establishment required if board of auditors is established. | Establishment required | |
Representative director(s) | Appointment possible if 2 or more directors appointed. Executive officer with right of representation*2 . | Appointment of 1 or more required. | Appointment possible if 2 or more directors appointed. Executive officer with right of representation*2 . | Appointment of 1 or more required. | |
Auditors | No. | 1 or more may be appointed.However, appointment of 1 or more is required if a board of directors is established and no accounting counselor is appointed | Appointment of 1 or more required | Appointment of 3 or more required | |
Term | 4 years in principle. | 4 years | 4 years in principle. | 4 years | |
Board of auditors | Establishment possible | Establishment required | |||
Accounting auditor | Appointment | Appointment possible | Appointment necessary | ||
Term | 1 year | ||||
Accounting councilor*4 | Appointment | Appointment possible. | Appointment possible | ||
Term | 2 years in principle. | 2 years | 2 years in principle. | 2 years |
*1 A “company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1, 2015). A "company with nominating committee, etc." used to be called a “company with committees” before the said revisions.
*2 The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on and after March 16, 2015.
*3 If a company subject to the Financial Instruments and Exchange Act has not appointed an outside director by the last day of every business year, it must explain the reason why appointing an outside director would not be appropriate at its annual shareholders meeting.
*4 An accounting councilor must be a certified public tax attorney or certified public accountant. An auditing councilor prepares financial documents in association with the directors, and may not hold another position as well, such as director, auditor, or accounting auditor.
Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations) (if a nominating committee, etc. are established *1)
Table 1-3
Small and medium companies | Large companies | ||||
Kabushiki Joto Seigen Kaisha | Kokai Kaisha | Kabushiki Joto Seigen Kaisha | Kokai Kaisha | ||
Directors | No. | Appointment of 3 or more required | |||
Term | 1 year | ||||
Board of directors | Establishment required | ||||
Representative director | Appointment not possible | ||||
Executive | No. | Appointment of 1 or more required. | |||
Term | 1 year | ||||
Auditors | Appointment not possible | ||||
Board of auditors | Appointment not possible | ||||
Accounting auditor | Appointment | Required | |||
Term | 1 year | ||||
Accounting councilor | Appointment | Possible | |||
Term | 1 year | ||||
Auditors committee | Establishment required (for auditing, etc. of performance of duties by executive officers). | ||||
Nominating committee | Establishment required (to decide on proposed appointment and dismissal of directors for submission to the general meeting of shareholders). | ||||
Benefit committee | Establishment required (to determine compensation of executive officers, etc.). |
*1 "Companies with nominating committees" used to be called “companies with committees” before the revisions to the Companies Act (enforced on May 1, 2015).
*2 The requirement that at least one representative executive officer must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on and after March 16, 2015
*3 Note that the requirements of outside directors will be altered by the enforcement of revisions to the Companies Act.
Comparison regarding directors of joint-stock corporations (if an audit and supervisory committee*1 is established)
Table 1-4
Small and medium companies | Large companies | ||||
Kabushiki Joto Seigen Kaisha | Kokai Kaisha | Kabushiki Joto Seigen Kaisha | Kokai Kaisha | ||
Directors | No. | Appointment of 3 or more required*2 | |||
Term | 2 year | ||||
Directors | No. | Appointment of 1 or more required. | |||
Term | 1 year | ||||
Board of directors | Establishment required | ||||
Representative director | Appointment required*3 | ||||
Auditors | Appointment not possible | ||||
Board of auditors | Appointment not possible | ||||
Accounting auditor | Appointment | Required | |||
Term | 1 year | ||||
Accounting councilor | Appointment | Possible | |||
Term | 1 year | ||||
Auditors committee | Establishment required (for audit, etc. of performance of duties by directors). |
*1 A "Company with audit and supervisory committee of audit” was newly established due to the revisions to the Companies Act (enforced on May 1,
2015).
*2 A majority must be outside directors. They do not have to be full time.
*3 The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on and after March 16, 2015.
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