Jurisdiction - Japan
Reports and Analysis
Japan – Doing Business In Country.

29 September, 2014

 

 
Produced in partnership with Makoto Hirasawa of Okuno & Partners
 

Setting Up A Business 


There are various ways to structure a business in Japan. International businesses seeking to commence operations often form a subsidiary company as a vehicle for conducting their affairs. Companies formed in Japan are distinct legal entities with the ability to own assets and employ workers, and are subject to Japanese taxation. 


Different types of business entity may be created, including a joint-stock corporation (Kabushiki-Kaisha (KK)), limited liability company (Godo-Kaisha (LLC)), limited partnerships (Goshi-Kaisha) and unlimited partnerships (Gomei-Kaisha).


The rules relating to the establishment, operation and regulation of these companies are set out in the Companies Act and other relevant laws. Procedures for establishment include the preparation and notarisation of articles of incorporation, remittance of capital or payment of investment, and registration of establishment.


Most subsidiaries are formed as private companies by stipulating in their articles of incorporation that approval via a board of directors meeting is required for the transfer of shares. These companies can be converted into public companies at a later date should the need arise. 


Public companies may offer their shares for sale to the public on a national exchange, such as the Tokyo Stock Exchange (TSE) or JASDAQ, by fulfilling the requirements for listing. However, public companies are subject to a greater number of rules and regulations than private companies.


The article of incorporation consists of matters required to be stated to make the article of incorporation valid and matters that are not required to be stated, but become effective if so stated. 


A KK is required to state in the article of incorporation its purpose, trade name, place of principal office, amount of assets or minimum amount of assets contributed at the time of establishment, names and postal addresses of incorporators, and the number of issuable shares. 


An LLC is required to state its purpose, trade name, place of principal office, names and postal addresses of members, statement that all members are limited liability members, and amount of assets contributed. 


Key Features Of KK And LLC


It is common practice in Japan to select a KK or LLC mainly because the liability of equity participants is limited to the amount contributed. Their key features include:

 

  • limited liability
    • the liability of the shareholders or members is limited to the amount of capital contributed
  • management–KK
    • governed by a board of directors, which designates representative director(s) to manage day-to-day operations
    • representative directors must be individuals and at least one of them must be an individual who has an address in Japan and is resident in Japan 
    • in accordance with the Companies Act, certain major decisions require approval by shareholders at a shareholders’ meeting
  • management–LLC
    • management is initially vested in its members; members may delegate management to a managing member
    • individuals and companies are eligible to become members, but at least one of them must be an individual who has an address in Japan and is resident in Japan
  • capitalisation
    • the number of shares that may be issued is limited by the statement in the certificate on registered company information, which may be changed with the approval of the shareholders at a shareholders’ meeting
    • because membership interests represent a percentage of ownership, the number of membership interests is unlimited
  • statutory filings
    • a company is established through registration with the Legal Affairs Bureau
    • matters of public record include trade name, placeof principal office, purpose, way of public notice, the number of issuable shares, types of shares to be issued, statement that approval of a board of directors meeting is required for the transfer of shares (if applicable), amount of capital, name of directors, name of representative director(s), name of auditor(s) and date of establishment 
    • following establishment, a company is required to submit a notification of incorporation to the taxation authority
 

Key Employment Laws


Japanese laws relating to labour and the protection of workers include the Labour Standards Act, Labour Contract Act, Minimum Wages Act and Industrial Safety and Health Act. Employers are required to meet all relevant requirements and may be subject to investigation by Labour Standards Inspectors.


Global businesses must note that laws intended to protect workers as a matter of policy will apply even where the employer and employee agree to be governed by the laws of a foreign jurisdiction in the labour contract.


Equal Opportunities 


The principle of freedom of contract applies to employment. However, there are restrictions under the Equal Opportunities and Treatment Between Men and Women in Employment Act, which requires employers to provide, in principle, equal opportunities for all persons regardless of gender.


Employers may not impose conditions on gender during the hiring process, nor discriminate on the basis of sex with regards to assignment, promotion, demotion, training, change of employment status, retirement, mandatory retirement age, dismissal, and renewal of labour contracts.


Leave


Under the Labour Standards Act, employers are required to grant a certain number of days’ paid leave. This and the Welfare of Workers Who Take Care of Children or Other Family Members Including Child Care and Family Care Leave Act also require employers to grant requests for maternity leave, child care leave or family care leave.


Pay


All employers are under an obligation to pay at least the minimum wage, which is determined by region and industry. 


Statutory working hours are, in principle, 40 hours per week or 8 hours per day, excluding break time. Statutory days off are at least one day per week or four days in four weeks. Employers are required to make overtime pay to employees who have worked in excess of the statutory working hours or on statutory days off.


Managers and supervisors are exempted from the regulations on working hours, days off and overtime pay, with the exception of regulations on midnight work. Whether an employee should be considered a manager or supervisor is judged on the actual situation, not by title.


Termination 


Employers can terminate a labour contract only where they have objectively reasonable grounds for dismissal and the dismissal is considered to be appropriate in general societal terms. Grounds for dismissal must be stated in work regulations, otherwise the dismissal would be invalid.


Criteria for what is to be considered reasonable, in the case of dismissal of a redundant employee as a part of restructuring, include:

 

  • business necessity of workforce reduction
  • efforts to avoid redundancy
  • reasonable selection in determining which employee should be made redundant
  • due process (ie sufficient consultation with the employee to be made redundant and/or a labour union)
 

It is always difficult to judge the validity of a dismissal, and many other restrictions on dismissal exist besides those mentioned; it is highly recommended that employers seek legal advice prior to dismissal.

 

This article was supplied by Lexis Practical Guidance.

 

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