How to Make Articles of Incorporation

To start a business by establishing a Kabushiki Kaisah in Japan, what you need to do first is to prepare the Articles of Incorporation (定款 Teikan). If you hire a lawyer or judicial scrivener for the establishment of your company, he or she will also prepare a draft of the articles of incorporation. However, it is not easy to understand what they say, because they are legal terms written in Japanese.

If the attorney or judicial scrivener you hire can not speak English well, he or she may fail to explain where to pay attention.

Once the articles of incorporation are made, your company is required to pass a special resolution at a shareholders meeting in order to change them and registration of the change may take some cost.

Therefore, the articles of incorporation should be prepared in an appropriate manner from the beginning.

This article explains what you should keep in mind when preparing the articles of incorporation of your company.

Which Template You Should Use?

There are several templates for articles of incorporation depending on the type and size of the company. When the size of the company is small, it is preferable to use a simple model form to avoid complicated procedures.

The website of the Tokyo Notary Office has sample articles of incorporation for a kabushiki kaisha. Among these, templates for Minimum-Sized Company and Small Company may be helpful.

Consider the purpose of the company.

When drafting the articles of incorporation, You need to decide what to describe in the section of the Company’s Purpose.

The section of Company’s Purpose are supposed to describe the types of business which your company will operate. You should comprehensively describe the businesses that your company may engage in so that you do not have to amend the articles of incorporation in the future to add additional purposes.

It is important to note that in the case of a business that requires a license or permit, if the Articles of Incorporation do not state that the company will engage in such business, the company may not be able to obtain the license or permit.

For example, if a company wishes to operate a recycle store, it is necessary to obtain a secondhand goods dealer permit (古物商許可 Kobutsu Shou Kyoka). In order to obtain such a permit, the articles of incorporation must clearly state that the purpose of the business is to engage in the secondhand goods business.

If you plan to apply for such license or permit, it is advisable that you ask a lawyer or judicial scrivener with experience in such application procedures to check the articles of incorporation of your company.

How to describe the location of the company’s head office

The Articles of Incorporation must specify the location of the company’s head office. However, it is sufficient to specify up to the city name, and it is not necessary to provide a more detailed address.

Your company may move its office to another building in the same city after establishment. If the address and room number are also described in the articles of incorporation, the articles of incorporation would need to be amended each time you move your office.

Therefore, it is recommended that the location of the head office in the Articles of Incorporation be limited to the name of the prefecture and city or ward.

Decide on the Amount of Capital.

It is now possible to establish a company with capital as low as one yen. However, such a company is not trusted by business partners and banks. The amount of capital is always examined by bank when opening a bank account. If the capital is too low, the company may not be able to open a bank account.

On the other hand, if the amount of capital is 10 million yen or more, there are some disadvantages. For example, your company will be considered a business subject to consumption tax from the first year. And your company may not be protected as subcontractor under the Subcontract Act.

It is recommended that the amount of capital be in the range of several hundred thousand yen to several million yen for early stage.

Note that, in principle, to obtain the status of residence for Business Manager capital need to be 5 million yen or more.

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Determine the number of shares to be issued at the time of incorporation and the amount per share.

You also need to decide the number of shares to be issued at the time of incorporation and the amount per share.

Suppose, for instance, you establish a company with its capital 3,000,000 yen. You can decide the amount per share freely by stipulating it in the articles of incorporation. It is possible to set the amount at 1,000,000 yen per share.

However, if the amount per share is 1 million yen, it would be very difficult to find people who want to purchase the shares from you, because it’s too expensive. In addition, it would make it difficult to transfer 1% of the shares issued.

On the other hand, if each share is priced at 10,000 yen or 30,000 yen, you can easily transfer 1% of the shares.

The amount per share should be carefully considered taking account of future disposal.

Terms of office of executives

The articles of incorporation can stipulate the length of the terms of office of the executives. If you are the only executive, you do not need to worry too much, but if you are appointing more than one executive, the length of the term of office of the executive is very important.

In the case of a close company, the term of office for executives can be set at no more than 10 years under the Company Act (however, for auditors, the term must be set at no less than four years).

After you establish your company, it is possible that some executives will perform poorly or cause scandals. Although it is possible to dismiss such executives at a shareholders meeting, there is a possibility that the said executives may claim damages for wrongful dismissal.

If the term of office of the executive is set short, the legal risk can be reduced by simply not reappointing them at the expiration of their terms.

There are Several Other Points to Consider

When drafting the articles of incorporation, there are several other points to keep in mind in addition to the above. For example, the quorum and the procedure for convening shareholders meeting meeting, whether the company should be able to purchase shares from heirs in the event of the death of a shareholder, and the method of public notice are also important

It is recommended to check the meaning of each clause in the articles of incorporation with an attorney or judicial scrivener to ensure that they are appropriately prepared. Doing so will save unnecessary trouble and expense in the future.