2) Abolition of restriction on the minimum amounts as initial capital

In the New Company Law, the restriction of the minimum amounts of the initial capital has been abolished.
In viewpoint of the creditor protection etc. there used to be restrictions of the minimum amounts of the lower bound that had to be invested upon companies’ establishments in old Commercial Code and the Law of Yugen-Gaisya (YK – a limited company), with which you were not able to establish a company without investing 3 million yen or more for a YK, or 10 million yen or more for Kabushiki-Gaisya (KK - a stock company).

The minimum capital restrictions were supposed to be hindering of new establishments of companies by venture business or entrepreneurs etc., while being not actually effective in protecting creditors of such companies.　Due to the above reasons the minimum capital restrictions have been abolished and now you can set up a company with only one yen or above as the initial capital.

However, the new restriction concerning the dividend, that when equity falls below 3 million yen, the surplus cannot be divided has been installed from the viewpoint of the creditor protection. 

 (* 1) LST-KK is a new optional type of KK, by which it can be exempted from some obligations and conditions that regular KK have as above mentioned. This is to offset those benefits of old YK, which were lost since the new law has started.

(* 2) However, those YK that still remains as is under the new law (to be called as Tokurei Yugen-Gaisya) still never need to issue public notice of financial statements. It is a unique benefit of YK that even LST-KK never has.

5) Making of organization designs more flexible

Under the New Company Law, the organization design of a company can be more freely selected than before so that the types of organization will be very diversified.

What are the organizations in a company?

They are the organs and the positions of board directors etc. of a company, that to make decision and manage the company.

Detail of such organizations stipulated by the New Company Law, are as below

Those Points of the Company Law of Japan

The Company Law has been come into effect since May 1, 2006 onwards. Enforcing of the Company Law does not mean simply revising the current Commercial Code but do abolishing the whole parts of Commercial Code regarding companies and the Law of Yugen-Gaisya (Limited Company) etc. Therefore, the contents of Company Law are to cover quite wide area of doing business.

Below are the points of the Company Law in regard to setting up and operation of companies.

The Company Law of Japan

Back to Top

*Note: The formal nomenclature of this new law is Company Law (kaisya-hou) yet we call it as New company Law though the articles hereafter to clearly distinguish from the old laws.  



1) Comparison of Old KK vs. New KK at a Glance

Below is the comparison of old KK vs. new KK, with which you can check and see at a glance what are the main differences on set-up, organization and business operation of KK  under the New Company Law enforced since May 1, 2006 onwards. 

3) Abolition of Yugen-Gaisya (YK - Limited Company)

In the New Company Law, YK - Limited Company has been abolished and thus you can no longer set up a YK.

Under the old parts of Commercial Code regarding companies and the Law of Yugen-Gaisya (Limited Company), KK - stock companies were assumed to be open to outside with a large scale while YK - limited companies were closed within limited investors with a small-scale.

Therefore, the minimum capital used to be 3 million yen or above for a YK while 10 million yen or more for a KK. As for a YK, those restriction had been greatly eased in comparison to KK. For example, you can set up a YK with one-person board director, and decide whether or not to set a statutory auditor, and be exempted from the obligation of public notification of accounting reports.

However, in reality there had been a lot of KKs even with small scale in view of sustaining credible image to stakeholders and public, and thus it could no loner necessarily be assumed that KK = large scale and YK = small scale.

And then, YK have been now abolished in shape as absorbed into KK under the New Company Law.
However, those YK that had set up and existed before enforcement of the New Company Law as of May 1, 2006 and wish to remain as YK can still continue to be as Exceptional YK even under the new law, being exempted from some obligations that KK have to bear.

　

6) Established a New System of Accounting Counselors

Under the New Company Law, as a new organ of company assignment of Accounting Counselors is founded. The purpose of this new organ is to let such Accounting Counselors work on those Accounting process together with operational organs of a company in order to secure accuracy and legality of financial statements. Companies can assign such Accounting Counselors optionally by themselves in all types of organization design.

Duty of Accounting Counselors
The duties of Accouting Couselors are to make finacial statements, attachment for details, consolidted financial statments etc. together with provision of Accouting Counsel reports in cooporation of with Board Directors etc.

Rights and Obligations of Accounting Counselors
In order to accomplish the a.m. duties Accounting Counselors have rights and obligations as follows.

- Requiring inspection and reports
Accounting Counselors can request the company for inspection and reports of account books etc. Moreover, they can require the same to its subsidiary companies.

- Obligation of reporting
In case Accounting Counselors found facts that Board Directors or executive officers violated laws and the articles of incorporation on execution of their duties, they are obliged to report it to shareholders etc. 

- Obligation to attend Board Meeting
When financial statements are approved at a Board Meeting, Accounting Counselors must attend the meeting and express their points of view if necessary.

- Obligation to make statements at General Meetings
When the Accounting Counselors disagreed with Board Directors or executive officers about matter concerned with financial statements etc. they are qualified to express their points of view at General Meetings. 

 - Keeping and checking financial statements
Beside the company Accounting Counselors have to keep those financial statements for 5 years, and deliver the copy and abridgments upon claims by shareholders and creditors

Qualification of Accounting Counselors
The Accounting Counselors should be either of certified public accountants, auditing companies, qualified tax accountants or tax accountant companies. However, the following parties cannot become Accounting Counselors even if the were certified public accountants, auditing companies, qualified tax accountants or tax accountant companies.

Election and Dismissal of Accounting Counselors
To set up Accounting Counselors, you need to put an article to set Accounting Counselors in the articles of incorporation and elect or dismisses them by resolution of General Meetings. Those shareholders who have the majority (1/2 or more) of the resolution rights of the shareholder can exercise the resolution rights (it is possible to make it to the ratio of 1/3 or more by the articles of incorporation) in a General Meeting upon attendance of the majority (1/2 or more) of the resolution rights (it is possible to make it by the articles of incorporation above 1/2) to elect or dismisses Accounting Counselors.
Beside, the Accounting Counselors can express their points of view about the election, dismissal or the resignation of the Accounting Counselors in the General Meeting.

Term of Office of Accounting Counselors
In principle the term of office of the Accounting Counselors is “By the date the Annual General Meeting closed, which held within 2 years since the date of election” as well as Board Directors’.
However, those companies that have installed the restriction to transferable stocks can extend the term of office of the Accounting Counselors to “By the date the Annual General Meeting closed, which held within 10 years since the date of election” by the articles of incorporation.

Responsibility of Accounting Counselors
Accounting Counselors must assume responsibility to compensate for damages given to the company due to negligence on their duties, and such cases can be subjects of lawsuits filed by the shareholders.
In principle this responsibility cannot be exempted unless all the shareholders agreed to do so. However, in case Accounting Counselors were in good faith with no serious faults they can be partially exempted from the responsibility by resolution of “General Meeting”, “the articles of incorporation and corporate resolution” or “the articles of incorporation and contracts of limited liability”.
On the other hand, in case Accounting Counselors executed their duties in ill-intention or with serious faults, or prepared financial statements with false they shall bear the liabilities to compensate damages to third parties.

Registration of Setting Accounting Counselors
Assignment of Accounting Counselors is one of the must items to be registered at legal affairs bureaus. Therefore, you need to register the followings when assigning Accounting Counselors.

- The fact that your company has set Accounting Counselors
- Name or corporate name of the Accounting Counselors
- Where the Accounting Couselors shall keep those financial statements etc.
.

Organization Design Small/Medium-Sized and None-Public and Company

Organization design can be made more flexible on a small/medium-sized company than a large company, and also on a none-public company than public company. That is, a small/medium-sized and none-public company is supposed to be the most flexible and free on organization designs under the New Company Law

Generally speaking there would be 7 types of typical organization design for a small/medium-sized and none-public company.   The following are the examples of typical organization design..

As previously mentioned a General Meeting and Board Directors (or Board) are the must for any types of organization design. Therefore, please read with a General Meeting in addition to the below example organizations as a whole design such as; General Meeting + ABC + XYZ and so on.

Type 1.    Only 1 or more Board Directors
It is the form of a YK (a limited company) under the old law, which is admitted also by the New Company Law. It is suitable for a small-scale company actually managed by a president alone or more.

Type 2.   Board Directors  +  Statutory Auditors
You should be able to give credibility on your company from third parties by setting a statutory auditor. Since the limitation of audit authority by scale of companies’ size has been abolished under the New Company Law, the duty of a statutory auditor is to audit how those board directors are executing their duties expanded to the wide range of aspects on corporate operations. However, a closed company can limit auditor's authority only to the aspect of accountings by stipulating in the articles of incorporation.

Type 3.   Board Directors +  Accounting Counselors
It is one of organizations having added Accounting Auditors that newly been established by the New Company Law.
Those who can be assigned as Accounting Counselors are either of Certified Public Accountants, Audit Corporation, Qualified Tax Accountants or Tax Accountant Firms, and such Accounting Counselors are required to prepare those accounting statements in cooperation with the directors. Since those professionals of accounting are involved in preparation of accounting statements, those companies having this type of organization would be able to gain more credibility from business societies than ones with Type 1 and 2. Meanwhile, those costs as rewards and fees to those accounting professionals could, however, not help being more expensive due to the risks on them as being involved the organization as Accounting Counselors. 

Type 4.   Board Directors +  Statutory Auditors +  Accounting Counselors
This is a type that sets both of Statutory Auditors and  Accounting Counselors in an organization. The duty of Statutory Auditors will then be audit if the Board Directors and Accounting Counselors are correctly and appropriately executing their duties respectively. This type of organization could be good for tax-saving strategy (?) by assigning the family or relatives of the promoters as the Statutory Auditors, and also gain more credible image by setting the Accounting Counselors.

Type 5.   Board  +  Statutory Auditors
This is the very standard design of organizations for KKs under the Commercial Code. If you had set up a Board in your company, you need to elect Board Directors 3 or more, and also select Representative Director 1 or more out of the Board Directors. Moreover, you are required to assign either of Statutory Auditors or Accounting Counselors if set up a Board. With this type of organization you company will be able to gain the same degrees of credibility as well as those conventional types of KKs were.

Type 6.   Board  +  Accounting Counselors
This is an organization design newly established under the New Company Law. As well as the above Type 5, you need to elect Board Directors 3 or more, and also select Representative Director 1 or more out of the Board Directors. This would give firmer credibility from business societies than the Type 5. 

Type 7.   Board  +  Statutory Auditors +  Accounting Counselors
With this type of organization you can expect the firmest and substantial credibility on your company from business societies than all other organization designs above mentioned.  It should be fitting to comparably medium or large-scale companies even among those small and medium-sized companies.

;

.

　

7) More Autonomy by Articles of Incorporation

The New Company Law gives you more autonomy by the Articles of Incorporation. Managing your company independently according to the Articles of Incorporation is called Autonomy by Articles of Incorporation.
You can provide many things in the Articles of Incorporation other than ones stipulated in those laws and statutes under the New Company Law.
Below is the outline of how to prepare the Articles of Incorporation of your company.

What is the Articles of Incorporation?

The fundamental rules that provide activities of a company as an organization as so called Constitution of Company.
All of the old Commercial Code, the old Law of Yugen-Gaisya and the New Company Law stipulate that all companies are obligated to provide Articles of Incorporation. In other words, such companies that had not provided Articles of Incorporation could not legally exist.

Those contents provided in the Articles of Incorporation are composed with 3 groups of segments, i.e. Indispensable Description Items, Relative Description Items and Arbitrary Description Items.

a)      Indispensable Description Items
Those items as the musts you need to describe in the Articles of Incorporation. If you failed to provide them all in the Articles of Incorporation, the Articles are to become legally invalid.
Under the New Company Law, the indispensable description items are the below 5 items.

-          Business fields (Purpose of company’s business)
-          Corporate name
-          Amounts of capital invested or the minimum amount upon establishment of the company
-          Address of the company
-          Name and address of founder(s) of the company 

b)      Relative Description Items
Those items, which you are not obligated to describe in the Articles of Incorporation. Even without those items the Articles of Incorporation can still be legally valid. In other words, once you describe some Relative Description Item they are to be legally valid.
The items categorized as Relative Descriptions are as below.

-          Irregular Items described about contribution in items, subscription of company assets, rewords/fees to be paid to founders, and costs of the company establishment, which are so called risky promises
-          Shares to be issued when established the company
-          Number of shares to be issued as the maximum
-          Assignment of boar directors, statutory auditors, accounting counselors when established the company
-          Issuing of share certificates
-          Extending term of office of board directors etc
-          Limiting authority of statutory auditors.
-          Restriction on transferable shares
-          Dates for shareholders to exercise the one’s rights, etc. etc

c)       Arbitrary Description Items
Those items which you can opt to describe or not to describe in the Articles of Incorporation

 

 

8) What you should do with your YK (Yugen-Gaisya)?

Under the Company Law, YK has been abolished so that you can no longer newly establish a YK.
Then, what should you do with your YK set up before the new law enforced on May 1, 2006?
You have 2 ways to opt:

-          Remaining as YK so called Exceptional YK (Tokurei Yugen-Gaisya)

-          Transforming to KK  (Exceptional YK → KK)

Your YK have been automatically become Exceptional YK since the New Company Law enforced unless you had done the legal procedures for transforming your YK to KK. In other words, your YK must have become an Exceptional YK under the new law due to abolition of the old Law of Yugen-Gaisya.

The natures of Exceptional YK are as follows

-          No need to do any legal procedures to re-register your YK as to be an Exceptional YK in principle
-          You have to use the characters of Yugen-Gaisya on your corporate name, but no need to use the characters of Tokurei Yugen-Gaisya..
-          You have no obligation to run public notice of accounting reports unlike other KK have to do.
-          Even if your Exceptional YK was categolized as a large company you are not obligated to set Accounting Auditors unlike other large KK have to do.
-          You do not have to provide terms of office of Board Director and Statutory Auditors
-          There is no restriction on the maximum number of promoters unlike old YK were up to 50.
-          You can issue corporate bonds unlike old YK used to be unable.

What you need to do for transforming your Exceptional YK to KK?
You need to do the legal procedure to change the corporate name of your Exceptional YK to KK as called Change of Corporate Name. That is, you need to change the corporate name from Yugen-Gaisya ABC to Kabushiki-Gaisya ABC for example in the articles of incorporation and re-register your company at the registry office.
The legal costs needed for the Change of Corporate Name are JPY60,000 or above as registration taxes (JPY30,000 to dissolve the Exceptional YK and JPY30,000 or above to register the new KK), plus the legal service fee to be paid to lawyers.
Once you transformed your company to KK, you can no longer get it back to Exceptional YK

What you need to do if you had set up 1-Yen YK (Kakunin Yugen-Gaisya) before the new law?
This is about in case you had set up a 1-Yen YK (Kakunin Yugen-Gaisya) under the old laws. Before the New Company Law got enforced, you used to have to increase the capital of your 1-Yen YK (Kakunin Yugen-Gaisya) up to JPY 3 million within 5 years since the date of establishment. In accordance with abolition of minimum capital restriction under the new law, you no longer need to increase the capital and can remain as Exceptional YK or transform it to KK
However, keep in mind that you have to revise the article about the reason to dissolve the 1-Yen YK in its articles of incorporation and re-register the revision at a registry office within 5 years since the date of company establishment.

　

.

.

.

.

.

　

　

4) Simplification of procedures of company establishment

The enforcement of the New Company Law was made in the aim to back up and enhance establishment of new companies. In this context abolition of the minimum capital restriction would be one of the most remarkable points. However, another point that should greatly contribute to enhance establishment of new companies is simplification of the legal procedures to set up a new company. Those points simplified are as below.

- Abolition of same or similar corporate name restriction
In the New Company Law, similar corporate name restriction has been abolished. Under the old Commercial Code if the corporate name of your new company was the same or similar to the other companies’ that had already been registered in the same city, town or village for the same kind of business as yours, you were unable to register that corporate name of yours. It was called similar corporate name restriction that used to be enforced in the aim of preventing ill-intentioned violation of those extent companies’ rights and confusion in markets in the same area.
In the new law, no matter if the business fields of your new company are the same as other companies’, what to be restricted under the new law is only Same corporate name cannot be registered at the same address in principle.
However, please note that you are still unable to use the same name as other companies’ for any ill-intended purpose as stipulated in the Law of Anti Unfair Competition.

- Easing restriction on business fields (Purpose of Company’s Business)
Along with the abolition of the similar corporate name restriction, the restrictions on Purpose of Company’s Business are also deregulated.
On determining Purpose of Company’s Business there have been the factors required such as Profit-pursuing, Clearness, Concreteness, and Legality. In particular it used to be very difficult judging about Clearness and Concreteness. In viewpoint of such difficulty, examining the factor of Concreteness is no longer required under the New Company Law.

- Certificate of Capital Deposition is no longer necessary
A Certificate of Capital Deposition issued by a bank had been required to register your company by the Commercial Code.　Under the New Company Law it is, however, no longer needed in case of those companies established by promoters.
When establishing a company, it was necessary to deposit the money as an initial capital at a bank and be issued a Certificate of Capital Deposition. It proved that you prepared certain amount of money as the initial capital of your new company.
However, having a bank accept your money and issue the certificate was sort of challenging thing, though it may sound strange to you. In fact it usually takes long time such as a couple of week to get a bank issue a certificate, or some bank even refuse to accept your money sometime in case you failed to proof legality and substantiality of your company. Also, you may not be able to withdraw the money once kept at a bank so soon after the establishment.
Under the New Company Law obtaining only a Certificate of Bank Balance can suffice to proof the amount of an initial capital, which is much easier to obtain from a bank than a certificate of deposit. Now that you can save your time and money to establish your company.

Amongst the above, a) General Meeting and b) Board Directors are the must as the indispensable organizations to be set in all types of companies as KK. Setting of those organs other than a) General Meeting and b) Board Directors vary by type of companies.


Types of KK (Stock Companies)

Under the New Company Law, types of company are divided to several classifications. They are Large Company and Other Companies. (The latter actually means Small and medium-sized Company so that we call it so hereafter for convenience' sake). And other classifications are Public Company and Other companies (The latter actually means None-Public Company (or Closed Company) so that we call it so hereafter for convenience' sake).　

The Definition of Large Companies:
Large Companies are those KKs that come under either of the below conditions.
- Having JPY 500 million or more as the capital on the balance sheet of the last fiscal year.
- Having JPY 20 billion or more as the liabilities on the balance sheet of the last fiscal year

The Definition of Public Company:
Public Companies are those KKs that do not have such kinds of stocks, which shareholders cannot transfer no matter partially or all of the stocks to anyone else without approval by the company. In other words those company are to become a public company if they have even partially got such transferable stocks.

The below table shows the am types of KKs