In previous years, any non-resident wishing to create a Kabushiki Kaisha, or K.K. company, in Japan was required to have a local representative director who lived in the country. While this requirement has since been relaxed, a representative director still has a role to play for foreign companies that want to incorporate in Japan.
To encourage and simplify foreign investments, the Japanese government changed its requirements for starting a K.K. company. Today, all you need is a resident incorporator who holds at least one share in your company at the time of incorporation, and they can transfer that share to you immediately after formation.
Before that change, the representative director played a much more active role in the day-to-day operations of the company. That does not mean this role is now obsolete; far from it. If you want to open a branch office for your company, you will still need a resident representative as well as a registered address. Many companies choose to open a branch office in Japan (as opposed to a representative office) because it allows them to engage in full-scale business activities without an initial capital requirement. And if you want to open any other type of company, having a resident serve as your surrogate is an important cultural consideration that you may choose to make regardless of any legal requirement to do so.
Having a resident represent you can be a smart public relations move as you work to build your overseas business. Other businesspeople in the area will appreciate your commitment to respecting Japanese business culture. While it is no longer illegal to operate a company without fulfilling this role, it may prevent you from making any headway in the Japanese business community and destroy your chances of being successful in the future.
As we mentioned, Japanese Law used to require corporations like Kabushiki Kaisha to have at least one representative director who was a resident of Japan. Today, branches of foreign companies in Japan still need a representative of the branch who is a Japanese resident. This person does not need to be a Japanese national.
Although having a resident representative director is not legally required anymore, it is advisable for companies that want to operate smoothly in the Japan market; for example, it can be extremely difficult for foreign companies to open a Japanese bank account without a local surrogate representing them.
There are 2 main advantages to outsourcing this important role:
If the company names an employee of the company as a representative, it may be difficult to negotiate this person’s resignation in case of disagreement. This is because a representative in Japan has a lot of power. The representative may also commit your Japanese subsidiaries to contracts and make other decisions without your approval. Choosing a representative in the early stages of your incorporation in Japan is a huge decision, and if you make the wrong choice, it could be disastrous for your company. When you outsource this role, it makes it much simpler for you to make changes in the future.
A Representative Director is more heavily taxed than a regular employee; for example:
– Bonuses are not tax-deductible unless strict conditions are met
– Housing is not fully tax-deductible
As an ex-Director for PricewaterhouseCoopers, Eric has been representing companies in Japan for more than 7 years. Currently, he is representing about 10 entities in Japan. If you are looking for someone who understands the Japanese business environment as well as American business culture, Eric is the obvious choice. See Eric’s LinkedIn profile for more information but please note that some representations are not mentioned for confidentiality reasons. At JMC, we fully support Eric, which means that even if he is temporarily unavailable, our bilingual staff will be able to help you.
Outsourcing JMC’s services allows our clients to have a one-stop place for all the services they need in Japan, including the provision of a registered address and so much more.
A registered seal, also known as a hanko or inkan in Japan, is a carved stamp that can be used to sign documents. While you may have a personal hanko to sign documents, your business will also have one that you or your representative director can use. In Japan, the use of a registered seal is based on a long tradition, and many in the business community see it as a sign of respect, especially for foreigners doing business there. While you may not have any issues signing your name on documents as you would in the United States, your Japanese colleagues may be more likely to see you as a serious businessperson if you hire a representative director and use a registered seal.
Having a registered address is a requirement for all business entities in Japan. You may choose to have your own office as a registered address and conduct business activities there through your representative, or you may choose to outsource this function to a local business.