A Japanese subsidiary of a foreign company set up as a kabushiki kaisha can be formed and run with just one director (Companies Act, Article 326(1)). If its articles restrict the transfer of shares, it can also choose in its articles whether to have a board of directors (Article 327(1)).
Representative directors may all live outside Japan and need not be Japanese nationals. In 2015 the Ministry of Justice abolished its earlier practice of requiring at least one representative director to have an address in Japan.
The deciding question is who should decide what in Japan. A board brings more requirements on numbers, auditors and reporting, but it puts important decisions in a formal meeting.
When this becomes an issue
- Head office wants one of its executives to be the representative director of the Japanese subsidiary, but that person does not live in Japan.
- Head office asks whether the Japanese subsidiary needs a board, and nobody can explain the difference.
- The directors are spread across several countries and want to hold board meetings online or by written resolution.
- The subsidiary is unsure how to approve a loan from the parent or a licence agreement with the parent.
Structure: with or without a board
Who must have a board, and who may choose
A kabushiki kaisha must have one or more directors (Companies Act, Article 326(1)). It may establish a board of directors, company auditors and other organs by its articles (Article 326(2)).
A public company must have a board (Article 327(1)(i)). A "public company" is one whose articles do not require company approval for the transfer of all of its shares, that is, one that has at least some freely transferable shares (Article 2(v)).
A subsidiary wholly owned by a foreign parent that restricts the transfer of all of its shares in its articles is not a public company and can choose whether to have a board.
Differences between the two structures
| Item | Without a board | With a board |
|---|---|---|
| Number of directors | One or more (Art. 326(1)) | Three or more (Art. 331(5)) |
| Company auditor (kansayaku) | Generally optional | Generally required (Art. 327(2); exception for a non-public company with an accounting advisor) |
| Representative director | If none is appointed, each director represents the company. One may be designated by the articles, by mutual election of directors under the articles, or by resolution of the shareholders' meeting (Art. 349(1)–(3)) | The board selects one from among the directors (Art. 362(3)) |
| Business decisions | Majority of directors (Art. 348(2)) | Made by the board. Disposal of important assets, significant borrowing and other matters cannot be delegated to a director (Art. 362(4)) |
| Shareholders' meeting powers | Any matter concerning the company (Art. 295(1)) | Only matters set by the Companies Act or the articles (Art. 295(2)) |
| Reporting | No statutory periodic reporting | The representative director and other executive directors report to the board at least once every three months (Art. 363(2)) |
Key point
Terms of office
A director's term runs, in principle, until the close of the annual shareholders' meeting for the last business year ending within two years after appointment (Article 332(1)). A non-public company may extend this to ten years by its articles (Article 332(2)).
A company auditor's term is in principle four years, which a non-public company may extend to ten years by its articles (Article 336(1) and (2)). A non-public company (other than one with a board of company auditors or an accounting auditor) may also limit the auditor's audit to accounting matters by its articles (Article 389(1)).
Longer terms mean fewer re-appointment filings. But when head office rotates its executives, registrations can fall behind, so set the term with the parent's personnel cycle in mind.
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Try for free →Foreign and non-resident officers
No nationality or residence requirement
The Ministry of Justice has abolished its earlier practice that at least one representative director of a Japanese company must have an address in Japan (Civil Affairs Bureau Notice No. 29 of 16 March 2015). An application to register the formation of a company can be filed even if all representative directors live abroad, and they need not be Japanese.
The persons who cannot be directors are listed in Article 331(1) of the Companies Act (legal entities, persons sentenced for certain offences, and others). Nationality and a Japanese address are not among these disqualifications.
Documents for registration
| Situation | Ministry of Justice practice |
|---|---|
| A foreign national who cannot affix a registered seal | A signature certificate issued by an authority of the person's home country may be used, including one issued by the home country's embassy in the country of residence |
| Unavoidable reasons preventing a home-country certificate | A signature certificate from an authority or notary of the country of residence, or from a Japanese notary, may be accepted |
| Attachments in a foreign language | In principle, a Japanese translation of all of them must be attached (partial omission is allowed in some cases) |
| Paying in capital at formation | Only where all promoters and directors at formation have no address in Japan, an account in a third party's name may also be accepted (Civil Affairs Bureau Circular No. 41 of 17 March 2017) |
The representative director's address is registered
The registered matters of a kabushiki kaisha include the name and address of each representative director (Companies Act, Article 911(3)(xiv)). For a representative director living abroad, the foreign address is registered.
Since 1 October 2024, a measure to withhold the representative director's address has been available (Commercial Registration Regulations, Article 31-3). If the company applies at the same time as filing, for example, the registration of formation or of a representative director's appointment, and attaches the required documents, certificates of registered matters show the address only down to the city, ward, town or village.
Caution
Residence status
Where an officer lives in Japan and manages the business, residence status becomes relevant. The activity of operating a business, or engaging in its management, in Japan falls under the "Business Manager" status of residence (Immigration Control and Refugee Recognition Act, Appended Table I(2)).
For the criteria and procedure for the Business Manager status, see "Setting up and running a company in Japan as a foreign national".
Running meetings with directors abroad
Convening and resolutions of the board
Notice of a board meeting must be sent one week before the meeting, or a shorter period set by the articles. If all directors (and, in a company with auditors, all auditors) agree, the meeting can be held without convening procedures (Article 368).
A resolution requires a majority of the directors entitled to vote to be present, and a majority of those present (Article 369(1)). A director with a special interest in the resolution cannot vote (Article 369(2)).
Remote attendance and written resolutions
The board minutes must record, where a director not present at the venue attended, the method of attendance (Ordinance for Enforcement of the Companies Act, Article 101(3)(i)). The rule assumes that directors may attend without being at the venue.
If the articles so provide, a board resolution is deemed passed when all directors consent to a proposal in writing or electronically (Companies Act, Article 370). In a company with auditors, this does not apply if an auditor objects.
A shareholders' resolution is likewise deemed passed when all shareholders entitled to vote consent in writing or electronically (Article 319(1)). With a single parent shareholder, this greatly simplifies shareholders' meetings.
Important
Signing the minutes
Board minutes in paper form must be signed, or name-printed and sealed, by the directors and auditors present (Article 369(3)). Electronic minutes require the measure set by Ministry of Justice ordinance in place of a signature (Article 369(4)).
A director who took part in the resolution and did not record an objection in the minutes is presumed to have voted in favour (Article 369(5)). If a director abroad voted against, check that this is recorded.
Transactions with the parent: conflict-of-interest approval
A director who intends to transact with the company for themselves or for a third party must disclose the material facts and obtain approval (Article 356(1)(ii)). Approval is given by the shareholders' meeting in a company without a board, and by the board in a company with a board (Article 365(1)).
Where a director who is also an officer of the parent represents the parent in a transaction with the subsidiary (a loan from the parent, a licence agreement, a services agreement and so on), the transaction may fall within these conflict-of-interest rules. In a company with a board, the director must report the material facts to the board without delay after the transaction (Article 365(2)).
| Example | What to check |
|---|---|
| Borrowing from the parent | Whether a dual-role director represents the parent; whether board approval is needed as significant borrowing (Art. 362(4)(ii)) |
| Licence or services agreement with the parent | Involvement of dual-role directors; which body approves (shareholders' meeting or board) |
| Guarantee by the subsidiary of the parent's debts | Whether it is a transaction in which the interests of the company and a director conflict (Art. 356(1)(iii)) |
If a conflict-of-interest transaction causes loss to the company, the director concerned, the directors who decided on the transaction and the directors who voted for it at the board are presumed to have neglected their duties (Article 423(3)).
Directors' liability: it applies to nominal directors too
The relationship between the company and its directors is governed by the rules on mandate (Article 330). Directors must comply with laws, the articles and shareholders' resolutions, and perform their duties loyally for the company (Article 355).
A director who neglects their duties is liable to the company for resulting loss (Article 423(1)). A director who acts in bad faith or with gross negligence in performing their duties is also liable for loss caused to third parties (Article 429(1)).
Caution
Steps when officers change
When a registered matter changes, the change must be registered at the location of the head office within two weeks (Article 915(1)). Failure to register can lead to a non-criminal fine of up to JPY 1 million for directors and others (Article 976(i)).
- 1
Appoint at a shareholders' meeting
Directors and auditors are appointed by resolution of the shareholders' meeting (Art. 329(1)). With a single parent shareholder, a written resolution can be used (Art. 319(1))
- 2
Designate the representative director
In a company with a board, the board selects them (Art. 362(3)). Otherwise, by the articles, mutual election of directors under the articles, or the shareholders' meeting (Art. 349(3))
- 3
Prepare acceptance and identification documents
Foreign nationals can use signature certificates. Attach Japanese translations of foreign-language documents
- 4
Register the change within two weeks
File at the location of the head office (Art. 915(1))
- 5
Decide whether to apply to withhold the address
The application can be made only together with a registration such as the appointment of a representative director (Commercial Registration Regulations, Art. 31-3)
What you can do now
- Open the articles of incorporation and check the share transfer restriction, whether there is a board, the terms of directors and auditors, and any provision for written board resolutions.
- Check the certificate of registered matters for the current officers, the representative director and address, and when terms expire.
- If the company has a board, check the minutes to confirm that the three-monthly reporting actually takes place.
- List loans, licences, guarantees and other transactions with the parent, and check that approval was recorded.
- Confirm head office's planned personnel changes and plan how to meet the two-week registration deadline.
When to talk to a lawyer
- Head office asks you to review the subsidiary's structure (whether to have a board or a company auditor).
- A foreign or non-resident officer is being appointed and you are unsure how to prepare signature certificates or translations.
- A major transaction with the parent is coming up and you want to confirm conflict-of-interest approval and how to draft the minutes.
- You discover that an officer's term has expired or a change has not been registered.
We handle corporate matters for the Japanese operations of foreign companies in Japanese and English. See also "Entering Japan: choosing an entity and governing law", "Directors' liability" and "Acquiring a Japanese company". For cross-border matters, see our international practice page; for corporate matters, our corporate practice page; and for M&A, our M&A page.
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Frequently asked questions
Does the representative director of a Japanese subsidiary need to live in Japan?
No. In 2015 (Civil Affairs Bureau Notice No. 29 of 16 March 2015) the Ministry of Justice abolished its practice of requiring at least one representative director to have an address in Japan. The company can be registered even if all representative directors live abroad and none is a Japanese national.
Can the subsidiary have just one director?
Yes. A kabushiki kaisha needs only one or more directors (Companies Act, Article 326(1)). A company with a board, however, needs at least three directors (Article 331(5)).
Can board meetings be held online?
The Ordinance for Enforcement of the Companies Act requires the minutes to record how a director who was not at the venue attended, which assumes such attendance. If the articles so provide, a resolution can also be passed by written consent of all directors (Article 370). The three-monthly report on the execution of duties, however, cannot be omitted (Articles 363(2) and 372(2)).
Will the representative director's overseas address appear in the public register?
The representative director's address is a registered matter (Article 911(3)(xiv)). Since 1 October 2024, if the company applies when filing a registration and attaches the required documents, certificates show the address only down to the municipality. This can mean more documents for borrowing or real estate transactions, so consider it in advance.
Does the subsidiary need to approve a loan from the parent?
If a dual-role director represents the parent in the transaction, approval as a conflict-of-interest transaction by the shareholders' meeting (or by the board, in a company with a board) may be needed (Articles 356(1)(ii) and 365(1)). In a company with a board, significant borrowing is also a matter for the board (Article 362(4)(ii)).