What is the main source of law authorising this entity form?

Companies Act, Part III.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Companies Act, Part III.

(Maximum) period of existence

There is no maximum period of existence; provided, however, that if a period of existence is stipulated in its articles of incorporation, the LLC dissolves when such period has expired.

Governing document(s)

An LLC is governed by its articles of incorporation. An LLC may decide the matters concerning its corporate structure, rights of its members (shain, i.e., equity holders) and other matters more freely than a stock company by stipulating such matters in its articles of incorporation. This is a main characteristic of this entity.

Liability of incorporators / shareholders

Liability of members

• Members are liable for the performance of the obligations of the company to the extent of the value of their investment (excluding the value of the contributions already performed to the company).
• Additionally, if members who execute the business (gyomushikko-shain) fail to perform their duties, they will be jointly and severally liable to compensate for damages incurred by the LLC. Moreover, if they have acted in bad faith or with gross negligence in discharging their duties, such members are jointly and severally liable to compensate losses arising in a third-party as a result.

(Governing) bodies

For an LLC, the law does not stipulate any bodies. It is basically governed by the articles of incorporation. In principle, each member executes the business of the LLC and has authority to represent the LLC, however, it is possible to designate the member(s) who execute the business and elect the members who have authority to represent the LLC (representative member, “daihyo-shain”). A general meeting of the members (shain-sokai) may also be set by the articles of incorporation.

Other particularities

An LLC can be converted into a stock company.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions and divestitures, equity acquisitions, conversions etc.)?

An LLC can be converted into a stock company. An LLC can be involved in international transactions and restructurings; provided that it could be subject to regulations under the Foreign Exchange and Foreign Trade Act and restrictions under individual industry laws.

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

No.

Can this type of entity be used for a non-profit or charitable organization?

Generally, no.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

(Please note that different or additional documents may be required as the case may be, e.g., in a case when a foreign person or a foreign company will become a member.)

• An LLC is incorporated by the registration of incorporation. In general, the following documents are required for such registration:
• Application form for registration;
• A4 paper on which revenue stamps equivalent to the amount of registration and license tax are stamped;
• Articles of incorporation (2 copies, one for submitting to the legal affairs bureau, one to be kept at the company);
• Payment certificate of capital attached with a copy of a bank passbook of a bank account to which the capital payment is made, or a receipt issued by the representative member, etc.;
• Certificate(s) of registered seal(s) of representative member(s);
• Notification form of the company’s seal to be registered; and
• Paper or CD-R, etc. in which the matters to be registered are described, etc.

In addition, the following documents may be required in some cases:

• Letter(s) of acceptance of appointment of the representative member (s), etc. (in cases such as when the name(s) of the representative member(s) are not written in the articles of incorporation); and
• Decision letter regarding the representative member(s), location of the head office, the capital amount, etc. (in cases such as when the details of the address of the head office are not set forth in the articles of incorporation).

Involvement of notary, company register, governmental authorities

An LLC needs to be registered at a legal affairs bureau. Certification of the articles of incorporation by a notary public is not required for an LLC.

Timing (estimate)

Three days to two weeks from the date of application until the registration is completed.

Although the date of application for registration is registered as the incorporation date, practically, the actual business can start after the completion of registration.

Main costs, including registration and similar fees (excluding legal fees)

JPY 40,000 as revenue stamp on the articles of incorporation (not required in case of electronic articles of incorporation), and

Registration and license tax: 0.7% of the capital amount (JPY 60,000 is the lower limit).

Cost for preparing the company’s seal to be registered (approximately JPY 5,000 to JPY 10,000)

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The purpose of the company is described in the articles of incorporation and registered.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one member upon incorporation. There are no residency requirements for members. However, as a non-resident member cannot prepare his/her certificate of registered seal, in cases when it is required, a certificate of signature issued by the authorities of his/her home country is required instead.

Minimum number of directors (or other applicable officers) and residency requirements

In principle, all members execute the business of the LLC and have authority to represent the LLC, unless otherwise provided for in the articles of incorporation. If the member(s) who executes the business is stipulated in the articles of incorporation, only such member(s) can execute the business of the LLC. The LLC may also elect the representative member(s) from among the member(s) who execute the business. If a member who executes the business is a corporation, it is necessary to elect at least one natural person who executes duties of such member (shokumu-shikkosha).

There are no residency requirements for the member who executes the business, representative member, and shokumu-shikkosha.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no minimum share capital requirement.

The capital payment may be made to the account of a bank or other financial institution held by the member, or alternatively paid directly to the representative member because capital payments for an LLC do not need to be made to the account of a financial institution.

Is the physical presence of incorporators/directors/shareholders required in the jurisdiction for incorporation, formation, or organisation?

No. Registration of incorporation can be completed by an agent, although additional documents like a power of attorney are required.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

A Corporate Number (hojin-bango) which is used for administrative purposes including tax and social security is assigned to each corporation including an LLC by the National Tax Agency. Around one week after the completion of the incorporation registration, a notification letter of such number will be sent to the registered address of the head office, and will also be posted on the National Tax Agency’s website without any additional procedures.

What is the title of the applicable company registry?

The title of the applicable company registry is a legal affairs bureau (“Homukyoku”) which is a local agency of the Ministry of Justice.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

The following information must be filed at the legal affairs bureau and all such information will be publicly available*:

(*In certain cases, the address in (8) or (9) below is not publicly available. See response to Question 39.)

• Purpose;
• Trade name;
• Address of the head office;
• Address of branch office(s) (if any);
• If there are provisions in the articles of incorporation with regard to the duration or the grounds for dissolution of the LLC, such provisions;
• Amount of stated capital;
• Name(s) of the member(s) who execute the business of the LLC;
• Name and address of the representative member;
• If the representative member is a corporation, the name and address of shokumu-shikkosha;
• Provisions of the articles of incorporation regarding the method of public notice (if there are no such provisions, a statement to the effect that publication in an official gazette is to be the method of public notice); and,
• If the provisions of the articles of incorporation provide that electronic public notice is to be the method of public notice, the URL of the webpage to be used for public notice and the contingency method.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

Each member executes the business of the LLC, however, it is possible to designate the member(s) who execute the business in the articles of incorporation.

A member who executes the business represents the company; provided, however, that this does not apply in cases when representative members are otherwise designated.

How are the members of the executive body appointed, dismissed and replaced?

The member(s) who execute the business may be designated in the articles of incorporation. In such a case, the members who execute the business may be dismissed with the unanimous consent of the other members, limited to cases in which there are justifiable grounds unless otherwise stipulated in the articles of incorporation.

Representative member(s) may be appointed from among the members who execute the business by stating so in the articles of incorporation, or through the appointment by the members themselves pursuant to the provisions of the articles of incorporation.

If the member who executes the business is significantly incompetent to execute the business or to represent the LLC, the LLC may demand extinguishment of the right to execute the business or the authority to represent the LLC by filing a lawsuit, based on a resolution adopted by a majority of the other members.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes, a corporation can be a member who executes the business and a representative member.

In cases where a corporation acts as a member who executes the business, such corporation must appoint at least one shokumu-shikkosha and notify other members of his/her name and address. If the representative member is a corporation, the name and address of shokumu-shikkosha must be registered.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

There is no requirement to have non-executive directors. In the cases where the member(s) who execute the business is/are appointed, there may be executive and non-executive members in the company.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

No body of the members is stipulated by law, however it is possible to provide for a general meeting of the members in the articles of incorporation. In such a case, its tasks may also be stipulated in the articles of incorporation.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

The majority and/or quorum requirements may be provided for in the articles of incorporation. Additionally, the way in which voting rights are allocated to each member can also be freely determined in the articles of incorporation.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

An LLC must prepare financial statements for each business year. For an LLC, confirmation procedures such as approval at the general meeting of members are not stipulated by law, however, they can be provided for in the articles of incorporation. There also is no duty of public notice of such statements.

Is the entity permitted to determine its own financial year?

Yes; provided, however, the financial year must not be longer than one year.

Is the entity subject to any statutory (external) auditor obligations?

No.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No such requirements.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Equity interest (“mochibun”).

Are different classes of ownership interests possible? If so, what are some examples of different classes?

The idea of different classes of ownership interest seems not to apply for an LLC.

What documentation is required for the transfer of ownership interests?

No documentation is required other than those described in answer to the next question.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

Unless otherwise stipulated in the articles of incorporation, a member cannot transfer all or part of the member's own equity interests to others without the approval of all other members (a member who does not execute business may transfer all or part of such member's own equity interests to others if the approval of all members who execute the business is obtained).

In addition, as “subject matter invested by the members and the value and standard of evaluation of the same” must be described in the articles of incorporation, when some equity interest is transferred to other members, such description of the articles of incorporation must be amended. In the cases when such transfer results in a change of members, the description of “names and addresses of the members” must also be amended and if the new or departing member is a member who executes the business or a representative member, such change must be registered.

Are there any applicable stamp duties imposed when transferring ownership interests?

No.

How are shares issued? (including information on payment obligations, registration requirements)

Investment due to admission of new members and additional investment from the existing members are possible. Such changes must be reflected in the articles of incorporation with the consent of all members, unless otherwise provided for in the articles of incorporation. If such event results in a change of members who execute the business, a representative member or the stated capital, such changes must be registered.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Contributions in kind are possible. Since the subject matter invested by the members and the value must be provided in the articles of incorporation, if a contribution in kind is made, the relevant provisions in the articles of incorporation need to be amended. Unlike a stock company, investigation of an inspector (kensayaku) appointed by the court is not required.

The reasons for increase of stated capital are, apart from mergers, etc., only admission of new members, additional contributions from the members, or taking all or part of the capital surplus as stated capital.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

LLCs may not accept the transfer of some or all of their own equity interests. In cases such as mergers in which an LLC has acquired any of its own equity interest, such equity interest is extinguished when such LLC acquires the same.

An LLC may reduce the amount of its stated capital to: (a) compensate for losses; (b) effect a contribution refund to the members by amending the articles of incorporation; or (c) effect an equity interest refund to a departing member. In such case, it must obtain the consent of a majority of the members who execute the business and take procedures to protect the creditors such as giving public notice in the official gazette (kampo) and individual notice to each creditor informing the creditors that they can state their objections within a certain period. Capital reduction must be registered (change of the members who execute the business or representative members must also be registered, if applicable).

Any requirements with respect to distributions to shareholders?

An LLC may prescribe matters regarding the method for demanding the distribution of profits and other matters on the distribution of profits in the articles of incorporation. If there is no provision in the articles of incorporation with respect to the proportion of the distribution of profits and losses, those proportions are determined in accordance with the value of each member's contribution. In cases where the book value of the monies, etc. delivered to members of an LLC through the distribution of profits exceeds the amount of profits as of the day when such distribution of profits takes place, such distribution of profits cannot be effected.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Tax.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

National tax

• Corporate tax

Current corporate tax rate is:

• For companies of which the amount of stated capital or total amount of contribution is JPY 100,000,000 or less, etc.: 15% for income up to JPY 8,000,000 and 23.2% for income beyond JPY 8,000,000;
• For other companies: 23.2%
• Local corporate tax (despite its name, one of the national taxes)

Current local corporate tax rate is 10.3%.

Local tax

Corporate resident tax, corporate business tax, etc., are imposed on income. These tax rates depend on the size of the company, the location of the company, and the other factors.

Please be aware that pass-through taxation is not applied to LLCs.

Summary of any specific matters, e.g. recent or prospective major legal developments

Under an amendment of the Regulation on Commercial Registrations which came into effect on September 1, 2022, if any individual whose address is recorded in the company registry (including an individual who is a representative member or a shokumu-shikkosha) requests not to indicate his/her address in the company registry on the grounds that he or she is a victim of spousal violence stipulated under Article 1, paragraph 2 of the Act on the Prevention of Spousal Violence and the Protection of Victims, a victim of a stalking, etc., stipulated under Article 6 of the Anti-Stalking Act or other person equivalent thereto, and he or she may suffer further damage if the address is indicated, the registrar may take measures not to indicate the address of such individual when the request is found to be appropriate.