Starting a Japanese company with ¥1 capital

Larger foreign companies, whose Japanese subsidiaries may be spending $30k – $100k or more per month immediately after incorporation, will not be deterred by the paid-in capital requirements of a kabushiki kaisha. For the many small companies aspiring to become large companies by successfully doing business in Japan, and that may only need an initial 2 person (US$15k/month if you get your compensation packages aggressively performance oriented) Japanese office, US$93,000 is a lot of ‘cash up-front’.

PLEASE NOTE – Japan’s revised Commercial Code and new Company Law take effect on May 1, 2006. From that date it is possible to establish sole director kabushiki kaishas and the paid-in capital requirement is effectively eliminated. The Limited Liability Company Law is abolished on that date so yugen gaishas cannot be registered after April 30, 2006. Both the kakunin kabushiki kaisha and kakunin yugen kaisha are no longer available. This site will be extensively revised in the next few days to include the effects of these changes.

Since April 2003 you can incorporate either a kabushiki kaisha ‘kk’ or a yugen kaisha ‘yg’ with just ¥1 of capital provided that you can prove that the original promoter (who must be a resident of Japan) has not started or managed any other Japanese company (or branch-office) during the 2 months immediately prior to incorporation.

Both the kabushiki kaisha and the yugen kaisha have always had statutory paid-in capital requirements but it is only since the early 1990s that the requirements were increased to the levels of ¥10,000,000 (~US$93,000) and ¥3,000,000 (~US$27,000) respectively. The reason for those increases was the sharp increase in corporate failures that marked the end of Japan’s economic boom of the 1970s and 1980s. The Japanese government believed that if companies were better funded upon establishment they would have a better chance of survival – the only real result was that many Japanese would-be entrepreneurs were unable to setup a company because they lacked the initial paid-in capital even if they had a great business concept. The apparent resilience of the US entrepreneurial economy caused the Japanese government to reconsider some (albeit too few) aspects of Japanese corporate law and one result was the introduction in April 2003 of the ‘kakunin kabushiki kaisha’ and the ‘kakunin yugen kaisha’ entities.

The kakunin kabushiki kaisha is legally identical to the kabushiki kaisha and the kakunin yugen kaisha is legally identical to the yugen kaisha – all the requirements noted in the section on setting up a kabushiki kaisha and setting up a yugen kaisha must be met for the kakunin kabushiki kaisha and kakunin yugen kaisha with the sole exception that these two entities can be established with a paid-in capital of ¥1. Note though that the statutory paid-in capital requirement is not eliminated – it is simply deferred for 5 years. Even though you can establish either form with just ¥1 paid-in capital, you must pay-in the full amount (¥10,000,000 for a kakunin kabushiki kaisha or ¥3,000,000 for a kakunin yugen kaisha) within 5 years of establishment. If you do not pay in the required capital within the 5 year grace period the entity simply reverts to an unlimited form of company.

There is no difference in the legal setup work required for the kakunin form or the fully funded form of either entity. The establishment costs will still be expensive compared to the typical $150 – $250 cost of setting up a US corporation or European company and of course neither the kakunin kabushiki kaisha nor the kakunin yugen kaisha can be setup online.

Possibly the main obstacle to a foreign company starting business in Japan and wanting to incorporate either the kakunin kabushiki kaisha or kakunin yugen kaisha, will be finding someone able to initially act as its promoter. The Japanese government discourages the creation of ‘off the shelf’ corporations and one of the requirements for either of these kakunin entities is that the initial promoter (the person whose name will appear as ‘manager’ or ‘director’ on the entity’s initial registration documents) must not have been a director, representative manager or promoter of any other Japanese corporation in the 2 month period immediately prior to the date of incorporation. Nonetheless the kakunin kabushiki kaisha and kakunin yugen kaisha are worth considering if you can somehow satisfy that requirement and cash flow is an issue.