Types of Business Structures

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The main business structures generally used by foreign companies to establish a business presence in Japan are:

  • Representative office
  • Branch office
  • Subsidiary company
  • Limited liability partnership (LLP)

Representative office

Representative offices are established as locations for carrying out preparatory and supplemental tasks aimed at enabling foreign companies to engage in full-scale business operations in Japan.

These offices may conduct market surveys, collect information, purchase goods and implement publicity/advertising efforts, but they are not permitted to engage in any sales activities. The establishment of representative offices does not require registration. A representative office cannot ordinarily open bank accounts or lease real estate in its own name, thus, agreements for such purposes must instead be signed by the head office of the foreign company or the representative at the representative office in its individual capacity.

Branch office

The branch office can begin its business operations as soon as the office location is secured, the branch office representative is determined, and the necessary information are registered. A Japanese branch office is a business location that provides services in Japan. Such services are decided upon by an organization authorized by the foreign company, and the branch office is usually not expected to engage in independent decision making. The branch office does not have its own legal corporate status, but instead is deemed to be encompassed within the corporate status of the foreign company. Therefore, in general, the foreign company is ultimately responsible for all debts and credits generated by the activities of its Japanese branch office. The branch office, however, may open bank accounts and lease real estate in its own name.

Subsidiary Company

A foreign company establishing a subsidiary company in Japan must choose to establish the subsidiary company as a joint-stock corporation (Kabushiki Kaisha or K.K.), limited liability company (Godo Kaisha or LLC), or a similar entity stipulated by Japan’s Corporate Law.

All types of subsidiary companies can be established by completing the required procedures stipulated by law and then registering the corporation. A subsidiary is a separate corporation from the foreign parent company. Thus, the subsidiary will bear the liability of an equity participant stipulated by law for all debts and credits generated by its activities.

There are other methods by which a foreign company may invest in Japan using a Japanese corporation without establishing a subsidiary. One method is a joint venture with a Japanese enterprise or investment company and another method is by equity participation in a Japanese enterprise.

Limited Liability Partnership (LLP)

It is also possible to do business in Japan by using a Yugen Sekinin Jigyo Kumiai. This type of entity, considered as the Japanese version of limited liability partnership (LLP), is not a corporation, but a partnership formed only by the equity participants having limited liability. LLPs are also distinguished by the fact that internal rules can be freely determined by agreement between the equity participants, and that taxes are levied on profits allocated to equity participants without LLPs themselves being liable for taxation.

Limited Liability Partnership (LLP)

It is also possible to do business in Japan by using a Yugen Sekinin Jigyo Kumiai. This type of entity, considered as the Japanese version of limited liability partnership (LLP), is not a corporation, but a partnership formed only by the equity participants having limited liability. LLPs are also distinguished by the fact that internal rules can be freely determined by agreement between the equity participants, and that taxes are levied on profits allocated to equity participants without LLPs themselves being liable for taxation.

Comparison of Types of Business Operation

Legal differences between each of the above business operation are summarized in the following table.

Representative
office
Branch office
(office of foreign
company)
Subsidiary company
(Joint stock
corporation)
LLP
Business Activity Not available Available Available Available
Registration N/A Necessary Necessary Necessary
Capital N/A N/A No minimum capitalization requirement
Representative Director N/A Branch representative Required At least 1 No legally stipulated minimum
Director N/A N/A At least 1
Corporate Auditor N/A N/A 1 or more may be appointed
Accounting N/A Aggregation with income in home country required Completed by accounting of Japanese partnership
Representative Office
Business Activity Not available
Registration N/A
Capital N/A
Representative Director N/A
Director N/A
Corporate Auditor N/A
Capital Accounting
Branch office (office of foreign company)
Business Activity Available
Registration Necessary
Capital N/A
Representative Director Branch representative Required
Director N/A
Corporate Auditor N/A
Capital Aggregation with income in home country required
Subsidiary company (Joint stock corporation)
Business Activity Available
Registration Necessary
Capital No minimum capitalization requirement
Representative Director At least 1
Director At least 1
Corporate Auditor 1 or more may be appointed
Capital Completed by accounting of Japanese partnership
LLP
Business Activity Available
Registration Necessary
Capital No minimum capitalization requirement
Representative Director No legally stipulated minimum
Director No legally stipulated minimum
Corporate Auditor No legally stipulated minimum
Capital Completed by accounting of Japanese partnership

Joint Ventures

A joint venture (often abbreviated “JV”) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and sharing the revenues, expenses, and control of the enterprise. In Japan, joint ventures are mainly organized for one specific purpose like construction projects in construction industry. There are no special regulations governing the establishment of joint ventures.

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