Q: Jane is interested in establishing her own business venture, as she is getting tired of working as an employee. How should she go about it?

A: Let's start with basics. There are four types of companies in Japan. These include the if kabushiki kaisha (joint-stock company) and the if yugen kaisha (limited responsibility company). Both are popular types of limited liability company. You seldom see the other two types of companies, which are both of a partnership type in which shareholders have unlimited liability to the company's creditors.

Q: Could you tell me more about the first two types?

A: The yugen kaisha is a simplified version of the kabushiki kaisha, which cannot have more than 50 shareholders. Although a yugen kaisha firm's smaller size is its only disadvantage compared to a kabushiki kaisha firm, even people who have no intention of creating big companies (partners in a joint venture company, for example) tend to prefer the kabushiki kaisha over the yugen kaisha. This is probably due to the fact that the yugen kaisha is often used by individual entrepreneurs, such as grocers and barbers, for tax purposes and carries with it connotations of untrustworthiness. The kabushiki kaisha is used by most of the world-renowned publicly traded companies in Japan. At the same time, there are many kabushiki kaisha with just a few shareholders. Since there were no minimum capital require ments to form a kabushiki kaisha until about 10 years ago (now you must have 10 million yen in initial capital), many small kabushiki kaisha were established. Thus, it is difficult to judge a company by its name in Japan.

Q: What are the requirements of setting up a kabushiki kaisha and a yugen kaisha?

A: First, you must have 10 million yen in initial capital in case of a kabushiki kaisha and 3 million yen in case of a yugen kaisha. A kabushiki kaisha must have three directors and a statutory auditor, and a yugen kaisha must have one director. A representative director of a kabushiki kaisha and a director of a yugen kaisha must be a resident in Japan_although he or she need not be a Japanese national.

Q: Is there any other way to do business in Japan?
A: Other than setting up a company in Japan, it is possible to establish a company outside of Japan and have a branch in Japan. Although there are a few restrictions on its activities, a foreign company will generally have the same rights and obligations as a corresponding type of company in Japan (kabushiki kaisha, yugen kaisha, etc.). For a foreign company to carry out commercial transactions on a continuous basis in Japan, it must register a branch in Japan.
Q: What is the advantage of doing so?

A: The advantage is avoiding the strict requirements for setting up a company in Japan. There are foreign jurisdictions that require no minimum amount of capital, such as Delaware and many other U.S. states, and most of the tax haven countries. It is often possible to set up a company in such places inexpensively through the Internet. You should consult a lawyer if you wish to pursue this method, since there are certain delicate issues involved.

Q: Jane actually wants to set up a kabushiki kaisha and is thinking of asking her friends in the United States to become the directors. She has already asked a judicial scrivener to prepare the necessary documents. But she discovered that there were minutes and other papers which required signatures of the directors. Unfortunately, one of the directors to-be is traveling in the Himalayas and will not be back for another couple of months. If it is not possible for Jane to get the signature, what can she do?
A: Jane can execute the papers using a seal of the director. In Japan, as you may know, seals, or hanko, are as good as signatures in executing documents. The Code of Civil Procedure expressly provides that a document is presumed to be valid if it has a signature or a seal. Japan is probably the only country in the world where a seal plays such an important role. However, it is interesting to note that there are no legal requirements stipulating the attributes of a seal. You can purchase a ready-made seal, if your name is Suzuki or Tanaka, or even carve your name on a piece of wood by yourself. You can register a seal with a city or ward office, and there are certain requirements as to the size of such registered seal. As a matter of law, however, a registered seal and a non- registered seal are not treated differently, except that you can obtain a seal certificate from the city or ward office for the former. In Jane's case, she can prepare seals for the directors with the names of the individuals in katakana characters. The Legal Affairs Bureau will accept documents executed with such seals without any further verification. It is assumed that each seal was placed by, or with the authorization of, the respective owner of the seal, since otherwise it would constitute a criminal offense.
The author, Jun Norisugi, is a practicing lawyer at Norisugi & Associates and specializes in international business affairs.