Corporate Law

Japan offers two main corporate structures for business formation.

Stock Corporation (Kabushiki Kaisha / KK) (Companies Act Art. 25+): The most common entity type. Minimum capital of ¥1. Requires articles of incorporation notarized at a notary office (¥50,000) and registration at the Legal Affairs Bureau (registration tax ¥150,000). Total setup costs are approximately ¥210,000-250,000. A single director is sufficient for private companies.

Limited Liability Company (Godo Kaisha / GK) (Art. 575+): No notarization required, reducing setup costs to approximately ¥60,000-100,000. Offers greater flexibility in governance and profit distribution. Commonly used by foreign companies establishing Japanese subsidiaries (Apple Japan, Google Japan, etc.).

Post-incorporation filings: Tax office registration, prefectural/municipal tax notifications, and social insurance enrollment at the pension office are required.

Well-drafted contracts are the cornerstone of business dispute prevention. Critical clauses include:

1. Scope definition: Detailed specifications, deliverables, acceptance criteria 2. Payment terms: Amount, timing, method, late payment interest (statutory rate: 3%, Civil Code Art. 404). For subcontracting, payment within 60 days of receipt (Subcontracting Act Art. 2-2) 3. Non-conformity liability (Art. 562+): Repair, price reduction, damages, and rescission rights 4. IP ownership: Copyright assignment must explicitly include rights under Art. 27 and 28 of the Copyright Act 5. Confidentiality (NDA): Definition of confidential information, restrictions, term (typically 3-5 years), exceptions 6. Termination: Default events, anti-organized crime clauses, insolvency triggers 7. Dispute resolution: Agreed jurisdiction (Civil Procedure Act Art. 11) or arbitration; governing law for international contracts

Directors owe duties of care (Art. 330/Civil Code Art. 644) and loyalty (Art. 355) to the corporation.

Liability to the company (Art. 423): Directors who breach their duties are liable for resulting damages. The Business Judgment Rule protects decisions made through reasonable information gathering and deliberation.

Liability to third parties (Art. 429): Directors acting with bad faith or gross negligence are personally liable to third parties — e.g., continuing business while knowingly insolvent.

Derivative suits (Art. 847): Shareholders holding shares for 6+ months may sue directors on behalf of the company.

Liability limitation: Available through unanimous shareholder consent (Art. 424), general meeting resolution (Art. 425), or limitation agreements for outside directors (Art. 427). D&O insurance (Art. 430-3) is standard practice.

Building a robust compliance framework is essential for corporate risk management.

Internal controls (Art. 362-4-6): Large companies (capital ¥500M+ or liabilities ¥20B+) must establish internal control systems by board resolution.

Whistleblower Protection Act (2022 amended): Companies with 300+ employees must establish internal reporting systems. Retaliation against whistleblowers is prohibited.

Personal Information Protection Act: Data controllers must specify usage purposes, implement security measures, and restrict third-party transfers. 2022 amendments mandated breach reporting and expanded individual rights.

Anti-organized crime: Exclusion clauses in contracts and counterparty screening are standard practice.

Harassment prevention: Mandatory measures for power harassment (Art. 30-2 of Employment Measures Act), sexual harassment, and maternity harassment.

Patents: Protect inventions for 20 years from filing (up to 25 for pharmaceuticals). Filing to registration takes 2-3 years. Costs ¥300,000-600,000. Employee invention compensation (Patent Act Art. 35) requires internal policies.

Trademarks: Protect brands for 10-year renewable terms. Registration takes 6-12 months. Costs approximately ¥150,000-250,000 per class.

Copyright: Arises automatically upon creation. Works made for hire (Copyright Act Art. 15) belong to the employer if statutory requirements are met.

Trade secrets (Unfair Competition Prevention Act Art. 2-6): Commercially useful technical or business information managed as confidential is protected. Access restrictions and confidential markings are essential to meet the "managed as secret" requirement.

M&A methods include share transfers, business transfers (Art. 467), mergers (Art. 748+), share exchanges (Art. 767+), and corporate splits (Art. 757+).

Due diligence: Legal DD examines litigation risks, change-of-control clauses, IP rights, labor compliance, and regulatory permits.

Business succession options: 1. Family succession: Tax planning critical; Business Succession Tax System can defer up to 100% of gift/inheritance tax 2. Employee succession (MBO): Financing the share purchase is the main challenge 3. Third-party succession (M&A): Government-supported Business Succession Support Centers assist small businesses

Representations and warranties: M&A agreements include seller representations about the target company's condition, with indemnification clauses for breaches.