Some things to remember when incorporating
As with anything, when incorporating a company, there are numerous matters that must be decided, and when making such decisions there are a number of points which should be given consideration.
With our extensive experience incorporating companies, we are well-positioned to provide our clients with the right advice and solutions to help them incorporate their company to fit their needs.
The following are just some examples of the issues that should be considered when incorporating.
Company Name
In principle, a company name may be freely decided, however there are several things to be aware of.
First, if two companies do not share the same registered address, it is possible to register the same name as an already existing company. That said, if the name could be viewed as a source of confusion with another company with the same name, to avoid the risk of possible legal disputes, it is recommended to select a non-conflicting name.
Second, as some special characters and symbols may not be registered as part of a company name*, it is necessary to check to beforehand.
* http://www.moj.go.jp/MINJI/minji44.html
Business Purposes
In addition to the business activities that will actually be performed, the company business purposes may also include activities that you may possibly engage in the future.
Since the business purposes are sometimes used as part of evaluations and credit checks by new transaction partners and financial institutions, the business purposes should be written to clearly describe the purposes of the company in simple terms.
Also note, that when performing business activities that requires a license or permit, it is necessary for the purposes to be written in the format required by the authorities for that specific license application.
Finally, when subscribing to group social insurance plans for certain industries (ex. Kanto IT Kempo), it is also necessary to remember that certain specific wording is required to be included in the business purposes.
Registered Address (Head Office)
Since the Companies Act does not place any limitations on the location of the registered address of a company, it is possible to register a residential address, virtual office or rental office as the registered company address.
However, when applying for permits or visas for foreign employees, in some circumstances there are certain requirements on the type of office, size etc.
Furthermore, it is advised to keep in mind that in some instances, businesses’ registered at a virtual office address may find their bank account opening applications rejected.
Finally, as sometimes applications for subsidies, public funding or credit union loans have certain registered address requirements, if you are planning to use such services, it is recommended to check for any special conditions in advance.
Method of Public Notice
The method of public notice refers to the medium used to disclose company financial statements and other company information as required by law to the public.
The most common method of public notice is through publication in the Official Gazette, however it is also possible to select daily newspapers or electronic notice. When making such decision, it is necessary to consider factors such as publication costs and as well as convenience for performing certain legal procedures.
Amount of Capital
Going strictly by the Companies Act, it is possible to register a company with a minimum of one (1) yen registered capital. However, as the amount of registered capital is recorded on the company registration certificate, it is often used as one measuring stick of commitment and credit worthiness, and therefore extremely low amounts are generally not recommended.
Also, while there is no upper limit to the amount of registered capital, since companies incorporated with less than 10,000,000 yen capital may be eligible for certain tax benefits in its first two fiscal years*, an amount less than 10,000,000 yen may be considered as one possible threshold.
* https://www.nta.go.jp/taxanswer/shohi/6503.htm
Shareholding and Investment Ratios
When incorporating a company with multiple shareholders, it is necessary to carefully consider the shareholding structure and investment ratios.
Since in principle the voting rights of a shareholder are proportionate to the number of shares held, it is necessary to consider voting powers at shareholder meetings.
A majority vote (ordinary resolution) for the election of directors, and a two-thirds majority (extraordinary resolution) required for amendments to the Articles of Incorporation, mergers and dissolutions can be viewed as two thresholds to consider.
Management and Supervisory Boards/Officers
According to the laws and regulations, there is no requirement for a company to have a Board of Directors or statutory auditor, and there is relative freedom in deciding on company management structure. As the number of different management structures possible has increased, it is important to establish a structure that is suitable for the size and style of your company.
Furthermore, as there are numerous factors to consider when deciding on the composition of the directors and other officers who will execute company operations, careful consideration should be used when making such decisions.
Fiscal Year
The fiscal year refers to the prescribed period at the conclusion of which the company accounts are closed. A fiscal year may not exceed one year in length, and in the case of most companies, it is usually set as a one year period.
When deciding on the fiscal year, the following should be considered: (1) since corporate taxes will need to be paid, avoid periods during the calendar year where cash flow may be an issue and (2) avoid excessively busy periods during the year as the volume of administrative work tends to increase around the fiscal year end.
Lastly, since companies incorporated with less than 10,000,000 yen capital may be eligible for certain tax benefits for its first two fiscal years*, it can be useful to select a fiscal year that will maximize the period of tax benefits.