Summary Update on Enforcement of Commercial Registration System for Foreign Companies

Recently, the Ministry of Justice (MOJ) of Japan, which has jurisdiction over the commercial registration system, has taken measures to require certain foreign companies to file for commercial registration pursuant to the Companies Act. This summary describes the update on enforcement of this commercial registration system, particularly with respect to foreign companies and overview of the commercial registration procedure for foreign companies.[1], [2]

1. Overview of Mandatory Commercial Registration Scheme for Foreign Companies.

Under the Companies Act, a foreign company[3] intending to conduct transactions on a continuous basis[4] in Japan is required to appoint one or more representatives in Japan (at least one of such representatives in Japan must be resident in Japan; the “Representative(s)”)[5], and must conduct commercial registration with the Legal Affairs Bureau (“Commercial Registration”).[6] Foreign companies may not carry out transactions continuously in Japan before completing the Commercial Registration. [7] Failure to comply with the mandatory Commercial Registration obligations could trigger an administrative fine up to JPY 1 million (approximately USD 7,800)[8] against the Representative in Japan. Please see the Exhibit for an overview of the Commercial Registration procedure and post-registration matters (e.g., publication of its balance sheet, please see IV.A. in the Exhibit) for foreign companies.

2. Recent momentum in the Japanese government.

On April 19, 2022, Mr. Yoshihisa Furukawa, the Minister of Justice, stated during his press conference[9] that on March 29, 2022, MOJ and the Ministry of Internal Affairs and Communications (MIC) sent a letter to 48 foreign companies that (i) have filed a notification with MIC as an operator intending to conduct telecommunications business in Japan pursuant to the Telecommunications Business Act (“TBA Notification”), but (ii) (based on the views of MOJ and MIC) have not complied with the obligation of the Commercial Registration. Reportedly, such 48 foreign companies included, among others, Google, Meta (formerly known as Facebook), and Twitter, and MOJ and MIC asked them to conduct the Commercial Registration or explain the reason for not conducting the Commercial Registration if they choose not to do so. Mr. Furukawa did not disclose the details of the respective responses from those 48 companies during the press conference.

While MOJ and MIC have not explained their purposes of seeking Commercial Registration of the 48 foreign companies, reportedly one of the purposes may be improving consumer protection.[10] For example, if a foreign company is registered in Japan, a Japanese court would have jurisdiction over such foreign company, as a result of which its consumers in Japan would be able to bring a lawsuit against the foreign company by the court’s serving of a legal complaint to the Representative located in Japan instead of the foreign company’s offices located outside of Japan, which would significantly reduce the burden of the consumers to bring a lawsuit against the foreign company when they are involved in a dispute associated with the services provided by such foreign companies. 

3. Implications for Foreign Companies.

MOJ has not officially indicated whether it would continue seeking such measures for enforcement of Commercial Registration system for foreign companies other than the first group of the 48 foreign companies, or if it would take the same approach against foreign companies engaging in business-to-business commercial transactions rather than business-to-consumer commercial transactions.

Please note, however, that we think it would be prudent for foreign companies to assume MOJ will continue taking such measures, because the discussion above would generally apply to the foreign companies. In light of such assumption, we recommend that a foreign company confirm if it has commenced, or intends to commence, commercial transactions on a continuous basis in Japan, and ensure its compliance with the Commercial Registration obligations.

Exhibit

Overview of Commercial Registration Procedure

Set forth below is an overview of the Commercial Registration procedure for foreign companies in Japan.

1. A foreign company must register in the commercial register of the Legal Affairs Bureau of each municipality in which each Representative has an address. Should it establish a branch office[11] in Japan concurrently with or after registering the addresses of its Representatives, the foreign company must also register the location of the office with the local Legal Affairs Bureau having jurisdiction over such location.[12] To register, the foreign company must (i) appoint one or more Representatives in accordance with the applicable law of its home jurisdiction and its charter documents, (ii) duly authorize the establishment of the branch office through requisite internal corporate procedures (if applicable), and (iii) prepare the documents described below.

2. Information to be registered.

1. A foreign company is required to register (i) the information to be registered for a Japanese company that is comparable or similar to that of the foreign company (such as trade name, business objectives,[13] location of principal office and branch office(s) (if any), term of existence or causes for dissolution (if any), etc.),[14] and (ii) the information specifically required for foreign companies, including laws of jurisdiction under which the foreign company was organized, names and addresses of Representatives, address of branch office (if any), and information regarding public notice to be made in Japan.[15]
2. If the foreign company is comparable or similar to a Japanese joint stock corporation (kabushiki kaisha), the following information is also required: method of public notice designated pursuant to the laws of jurisdiction under which the foreign company was organized, and web page address if the balance sheet of the foreign company is disclosed on the Internet.

3. Documents. The registration application must include certain documents together with their Japanese translation (if the original documents are not in Japanese language), including affidavit of the Representative certifying that the foreign company is duly incorporated and validly existing, and certified signature of each Representative. In addition, power of attorney may be required, if the application is executed by proxy.

4. Post-formation.

1. The foreign company that is of the type which is comparable or similar to a Japanese joint stock corporation (kabushiki kaisha) must publish its balance sheet (or a summary thereof if the publication is made in either the official gazette (kampô) or a daily newspaper) without delay after the balance sheet has been approved at an annual general meeting of shareholders. There is no minimum amount that needs to be reflected on the balance sheet.  Publication is typically made in either the official gazette (kampô) or a daily newspaper. The foreign company may make such information publicly available on its website. A foreign company adopting online disclosure of its balance sheet must make such balance sheet available online in Japanese for at least five years.
2. If any matter recorded in the commercial register (including the Representatives) changes after the registration, the foreign company will be required to file the application for such change in the commercial register with the Legal Affairs Bureau within three weeks from the date of such change.[16]^, [17] The registration fee for such filing is JPY 9,000 (approximately USD 70).[18]

5. Notes.

1. An application for registration must be made within three weeks of receipt by the Representative in Japan of the notice concerning the appointment of the Representative in Japan from the home country.[19]
2. The registration license tax for registration of foreign company is (a) JPY 60,000 (approximately USD 470), if the foreign company does not establish branch offices,[20] and (b) JPY 90,000 (approximately USD 700), if the foreign company establishes branch offices.[21]
3. Failure to comply with the mandatory Commercial Registration or mandatory publication of the balance sheet could trigger an administrative fine of JPY 1 million (approximately USD 7,800) or less against the Representative in Japan.[22]
4. Under the Foreign Exchange and Foreign Trade Act (the FEFTA), if the branch office is supposed to engage in a business related to any of such business sectors as designated under the FEFTA (a “Designated Business”),[23] the foreign entity is required to notify the relevant authorities through the Bank of Japan in advance of the establishment of the branch office. The foreign entity cannot establish its branch office until the waiting period for such notification expires.<[24]

[1] This summary is provided for information purposes only and should not be construed as legal advice on any specific matter. Please do not act or refrain from action upon this information without seeking professional legal counsel on your specific matters.

[2] This summary is not intended to provide any advice regarding tax affairs. Please consult your own tax advisor about tax affairs.

[3] Under the Companies Act, a foreign company (gaikoku gaisha) is defined as an entity established under the laws of the country other than Japan that is of the same kind as or similar to a company established under the Companies Act such as stock corporation (kabushiki kaisha) or a limited liability company (gōdō kaisha, an LLC).

[4] While MOJ has not officially announced the interpretation or threshold of “on a continuous basis,” this term has been widely interpreted in general.

[5] Paragraph 1, Article 817 of the Companies Act.

[6] Paragraph 1, Article 933 of the Companies Act. Please note that MOJ’s website on Commercial Registration for foreign companies is available at in Japanese and in English. 

[7] Paragraph 1, Article 818 of the Companies Act. Please note that failure to comply with the mandatory registration obligations makes a person (e.g., an employee of the foreign company) who has carried out transactions (on behalf of or for the foreign company) liable, jointly and severally with the foreign company, to perform any obligations that have arisen from such transactions to the counterparty. (Paragraph 2, Article 818 of the Companies Act.)

[8] The exchange rate used in this summary is JPY 128 to the U.S. dollar.

[9] A summary of the press conference on April 19, 2022 is available only in Japanese.

[10] The discussion on April 13, 2021 in the Special Committee for Consumer Affairs of the House of Representatives also seemed to be the basis for the current MOJ’s movement. During the discussion, one of the independent Diet members insisted on the necessity of enhancing enforcement of Commercial Registration from a consumer protection perspective, and MOJ responded that it would consider appropriate measures MOJ should take in order to promote foreign companies’ Commercial Registration. The minutes of the special committee on April 13, 2021 are available only in Japanese.

[11] A branch office is not recognized as a legal entity separate from the foreign company. Therefore, claims and obligations arising from the activities of the branch office are attributed directly to the foreign company. As a result, the foreign company will be directly liable for actions taken by the branch office in the course of conducting business in Japan.

[12] While a foreign company intending to conduct transactions on a continuous basis in Japan is required to register its Representative(s), registration of its branch office in Japan is not required as long as it has not established any branch office in Japan.

[13] The Legal Affairs Bureau requires that the business purposes of the foreign company be of acceptable form and content. The activities of the foreign company in Japan must be consistent with the registered business purposes. While business purposes should be described specifically, the registered business purposes, if narrowly defined, may need to be amended as the Japan-based activities expand.

[14] If the foreign company is of a type that is comparable or similar to a Japanese joint stock corporation (kabushiki kaisha), the other information to be registered regarding the Japanese entity includes: amount of stated or paid-in capital; authorized capital; particulars of shares to be issued; number of shares already issued; names of directors, accounting auditors, and other officers; names and addresses of representative directors, representative executive officers, or any other persons authorized to represent the company. (Paragraph 3, Article 911 of the Companies Act.)

[15] Any of the following methods can be designated for public notice: official gazette (kampô), daily newspaper that publishes matters on current affairs, or electronic public notice.  If electronic public notice is designated, information, such as web page address, necessary for electronic public notice, is also required to be registered.

[16] If the registered location of the Representative in Japan of the foreign company without business offices in Japan changes, the foreign company will be required to file the application for relocation of the address of the Representative in Japan with the Legal Affairs Bureau at the old address within three weeks from the date of the relocation, and with the Legal Affairs Bureau at the new address within four weeks from the date of the relocation. (Paragraph 1, Article 935.)

[17] If the registered location of the branch office of the foreign company changes, the foreign company will be required to file the application for relocation of the address of the branch office with the Legal Affairs Bureau at the old address within three weeks from the date of the relocation, and with the Legal Affairs Bureau at the new address within four weeks from the date of the relocation. (Paragraph 2, Article 935.)

[18] Item 24(3)(c) of Appendix 1 to the Registration License Tax Law.

[19] Paragraphs 4 and 5, Article 933 of the Companies Act.

[20] Item 24(3)(b) of Appendix 1 to the Registration License Tax Law.

[21] Item 24(3)(a) of Appendix 1 to the Registration License Tax Law.

[22] Items 1 or 2, Article 976 of the Companies Act.

[23] The Designated Businesses are comprised of over 150 business sectors related to national security, public order, public safety, and the smooth operation of the Japanese economy. The Designated Businesses include, among others, telecommunications businesses subject to mandatory TBA Notification, software businesses, information processing services, and electric power businesses.

[24] The statutory waiting period is 30 days, which can be shortened by the authorities at their discretion.