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International Business: Starting a Japanese Subsidiary

Japan keeps getting easier to launch a fully owned subsidiary.  I'm on my second, and the process couldn't be smoother.  

Step 1: Choose your advisor.  Assuming you're coming in from the outside, a disinterested third party is a really good idea (and necessary and cheap).  The two basic types are law firms and accountants.  They do similar work and have similar cost structures.  I advise that your choice be guided by 1) will you need an accountant, and 2) to whom can you get referred?  Whoever you choose, I advise that this be your Representative Director.  Feel free to contact me for the "why this is critical".  Note that this person must have Japanese residency, and is a mandated position for most structures.

Step 2: Choose your structure.  Basically, there is seldom a reason not to go for a KK structure.  There are other options, but they seldom will save any time, and do occasionally have some constraints.  Some background is available here, but it is a little out of date, for example KK's do *not* get limited to 4x initial capital for their total capitalization.  http://www.japaninc.com/mgz_autumn_2006_incorporate

Step 3: Choose your internal structure.  I see this as binary: if it is a truly independent operation that will grow as its own company, you'll want the full package (3 person board, 1 representative director, 1 external auditor, in addition to the subsidiary president).  If it is a sales office or similar, there is no reason to do that and it just adds cost.  In such a case you can limit yourself to the representative director...appoint yourself to the board and you're done.

Step 4: Pull the trigger.  You'll need to determine your initial number of shares and price per share.  I suggest letting your incorporator do this (see step 1...that is their job).  1 share for 10K JPY for example.  Once that is done, there is an official company.  There are other tasks of course which I will get into later, but once you pay your bill (and in doing so, purchase that share) you have a company.  This whole process can get done in 3 weeks (1 to prep, 1 to file, 1 to get the approval from the government).  

 

Comments

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

I got a question that I'll pose here: why the single share? Why the incorporator?
Well, somebody has to do the incorporation; if you're familiar with Delaware, the Caymans, anywhere where it is efficient to incorporate a parent, you'll be familiar with the professional incorporator. This is the person who you pay a modest fee (often a few hundred $, or less if it is bundled) to file your paperwork. You *can* do it yourself, but you'd need to establish credibility and competence. This is what you pay other people to do for you.

So why the single share? Why not the whole funding? You *can* fully fund the company from the outset...no problem there. Especially if you are doing it yourself (and have an extra $25K to $50K and lots of time on your hands), you can fully fund the company at the moment of incorporation. However, where do you put that money? You'll still have to set up an escrow (probably through the same person that you didn't want to hire as incorporator) until you have a company and can open a bank account. Creating that artificial hurdle is one avoidable reason not to try to fully fund immediately.

The second reason for the single share, and the reason why an external incorporator is so much easier than doing it yourself, is that structurally it is far easier, faster and cheaper to buy a company than to build one. The incorporator creates a single-share shell company, you buy that and then fully fund it. Easy and very fast.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

New topic that I expect to learn more about in the near future...The Statutory Auditor. This is not the auditor we are all used to; their job is explicitly *not* to conduct a financial audit of the company's affairs. They are a disinterested but trusted third party who is not invested in the company, but who asserts (periodically) that the KK is compliant with the law. There is apparently some risk here, and so Statutory Auditors tend to do their homework and work on a referral basis.

Recently, as part of ongoing reforms, companies are now allowed to retain companies as their Statutory Auditor, not just individuals. I'm very interested in hearing from anyone who has either retained someone like this or who has performed this role.

By the way, this is the "external auditor" I mentioned above, and is a required role in a KK.

Anonymous
(DP Controller) |

comptroller

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