Key Points in Drafting Articles of Incorporation for Foreign Nationals Establishing a Stock Company in Japan

Establishing a stock company under the Japanese legal system is a crucial step for many foreign entrepreneurs and investors seeking to enter the Japanese market. In this process, the articles of incorporation serve as the most important legal document, forming the foundation of the company, and their creation requires a deep understanding of Japanese Corporate Law and precise drafting. Although the company establishment procedures are varied, this article will focus on the creation and certification of the articles of incorporation, which are central elements of the process.

When foreigners establish a company in Japan, language barriers, Japanese business customs, and complex legal procedures can pose significant challenges. Drafting the articles of incorporation is not just about fulfilling formal requirements; it also involves defining the company’s purpose, organizational structure, and handling of shares, among other crucial matters that will govern future business operations. Any deficiencies in this document could invalidate the company’s establishment or lead to unforeseen legal issues in the future. Therefore, ensuring legal accuracy and creating articles of incorporation that fully comply with Japanese laws is essential.

Monolith Law Office boasts a wealth of experience in corporate legal affairs, particularly in the IT and Internet sectors, and considers international legal services and support for foreign companies entering Japan as one of its key missions. Our firm includes several attorneys who are native English speakers with foreign legal qualifications, providing seamless communication in English and expert advice on the Japanese legal system to our international clients. We consistently offer comprehensive legal support, from drafting and certifying articles of incorporation to ongoing corporate management, to ensure that foreigners can confidently start their businesses in Japan. Through this article, we aim to provide specific knowledge about drafting articles of incorporation in Japan and assist in your business endeavors in the country.

What is an Articles of Incorporation: Its Role in Establishing a Stock Company in Japan

The Articles of Incorporation is a document that sets out the fundamental rules regarding the organization and activities of a company, often referred to as the “constitution of the company.” Under Japanese Corporate Law, the creation of this document and its certification by a notary public are mandatory for establishing a stock company. The Articles of Incorporation stipulate a wide range of matters related to the company’s operations, from basic information such as the company’s trade name, business purposes, and location of the head office, to the handling of shares, organizational design, and methods of appointing officers.

The items listed in the Articles of Incorporation are classified into three major categories based on their legal nature and importance: absolute mandatory items, relative mandatory items, and optional items. Understanding these classifications is essential for the proper drafting of the Articles of Incorporation.

The Articles of Incorporation are created at the time of a stock company’s establishment and define the basic rules for the company’s organization, operation, and business activities. This document serves as the basis for the company’s establishment act and forms the subsequent legal framework of the company. Japanese Corporate Law requires the drafting of the Articles of Incorporation when establishing a stock company. The Articles gain legal effect upon certification by a notary public (Article 30, Paragraph 1 of the Japanese Companies Act).

The creation of the Articles of Incorporation is indispensable for the establishment of a stock company. If the Articles are not created or lack absolute mandatory items, the Articles themselves become invalid, and as a result, the establishment of the company is not recognized. The Articles also play a role in clarifying the company’s business purposes and ensuring the stability of transactions.

The items to be listed in the Articles of Incorporation are divided into three categories based on their importance: ‘absolute mandatory items,’ ‘relative mandatory items,’ and ‘optional items.’ Absolute mandatory items are those that must be listed by law; otherwise, the Articles themselves are invalid. Relative mandatory items do not invalidate the Articles if not listed, but without them, the items in question will not have legal effect. Optional items are those that the founders of the company can freely decide whether to list or not. While their absence does not affect the legal effect, listing them can clarify the company’s rules.

The Articles of Incorporation are not merely a formal document but function as the basic rulebook of the company. They define a wide range of important matters for future business operations, such as the company’s purpose, organizational structure, and handling of shares. Any deficiencies in this document could invalidate the company’s establishment or potentially lead to unforeseen legal issues in the future, thus requiring meticulous attention and legal accuracy in its creation.

Mandatory Articles to be Included in the Articles of Incorporation: Absolute Provisions

The absolute provisions are mandated by Article 27 of the Japanese Companies Act and are items that must be included in the articles of incorporation. If any of these items are missing, the articles of incorporation are legally invalid, and as a result, it is not possible to establish a stock company. For foreign founders establishing a company in Japan, it is extremely important to understand these items accurately and to include them without omission.

The absolute provisions consist of the following five items:

1. Purpose: The articles must specifically state the business activities the company will engage in. For example, it is common to describe potential future businesses comprehensively, such as “development and sales of software” or “management of restaurants.” The purpose of the company is essential in clarifying the scope of the company’s business activities and ensuring the safety of transactions. If a new business is to be started in the future and it is not included in the purpose stated in the articles, a procedure to amend the articles will be necessary. Therefore, it is recommended to allow for some breadth in the purpose at the time of establishment.
2. Trade Name: The company’s name must be included. There are several rules for deciding on a trade name. For instance, you cannot use the same trade name at the same address. Also, trade names that indicate specific industries, such as “bank,” “life insurance,” or “trust,” are restricted by law and cannot be used. Names that intentionally cause confusion with other companies are also prohibited. As the trade name represents the face of the company, it must be selected with care.
3. Location of Head Office: The articles must state where the company’s head office is located. It is sufficient to include up to the smallest administrative division (for example, “Tokyo” or “Shibuya-ku, Tokyo”) in the articles, but at the time of registration application, a specific address (including the street number) must be determined. While it is possible to include a specific address in the articles, considering the possibility of relocation in the future, it is more convenient to keep the description broad to avoid the need for amendments.
4. Value or Minimum Amount of Property Contributed at Establishment: The articles must state the total amount or the minimum amount of property that the incorporators will contribute at the time of the company’s establishment. This is the foundation of the company’s capital and is an important item that indicates the company’s financial status. This information is necessary to clarify the company’s financial foundation.
5. Names and Addresses of Incorporators: The articles must include the names and addresses of all the incorporators who establish the company. The incorporators are those who lead the company’s establishment procedures and subscribe to shares at the time of establishment. If there are multiple incorporators, the names and addresses of all must be accurately included.

These absolute provisions are the minimum and essential information to establish the legal existence of a stock company. Ensuring that these items are accurately included is the most fundamental requirement in the creation of the articles of incorporation.

Provisions Requiring Inclusion in the Articles of Incorporation for Legal Effect: Relative Provisions

Relative provisions do not invalidate the articles of incorporation if they are not included, but to give legal effect to these matters, they must be explicitly stated in the articles of incorporation. These provisions are particularly important when establishing special rules that differ from the general provisions of the Japanese Companies Act regarding company operations and the handling of shares. For foreign founders wishing to manage their companies in accordance with their specific needs or the commercial customs of their home countries, considering these relative provisions and incorporating them into the articles of incorporation can be effective.

Key examples of relative provisions include:

1. Matters Related to Abnormal Establishment: These are significant matters that greatly affect the company’s assets and are stipulated in Article 28 of the Japanese Companies Act. Specifically, they include items such as:
   • In-kind Contributions: When contributing property other than money (real estate, movable property, claims, etc.), the content, value, and number of shares allocated for such property must be stated. In-kind contributions often lead to disputes over whether the valuation is appropriate, so they must be clearly stated in the articles of incorporation and, if necessary, subjected to an inspector’s investigation.
   • Property Acceptance: This is stated when the company promises to accept certain properties after its establishment.
   • Founders’ Remuneration: This is stated when determining the remuneration to be paid to the founders as compensation for establishing the company.
   • Establishment Costs: This is stated when the company bears the costs incurred for its establishment. These matters directly involve the company’s financial foundation and are not legally effective unless stated in the articles of incorporation.
2. Restrictions on Share Transfer: This is stated when restrictions are placed on the transfer of shares issued by a stock company, such as requiring approval from the board of directors. Especially in small and medium-sized enterprises and private companies, this provision is commonly established to prevent unwanted third-party share outflows and to stabilize management rights. Without this restriction, shares can be freely transferred.
3. Shareholder Register Administrator: This is stated when entrusting the creation and management of the shareholder register to a professional institution (such as a trust bank). This saves the hassle of shareholder management and ensures accuracy.
4. Buyout Requests to Heirs, etc.: This is stated when the company can request to buy back restricted shares acquired through inheritance or merger. This is an effective means to prevent the dispersion of shares and maintain a specific shareholder composition.
5. Unit Share Number: This is stated when determining the number of shares required for a shareholder to exercise voting rights. For example, if 100 shares are set as one unit, voting rights cannot be exercised with less than 100 shares. This facilitates the operation of the shareholders’ meeting.
6. Issuance of Share Certificates: This is stated when determining whether the company will issue share certificates. Under the Japanese Companies Act, share certificates are not issued as a general rule, but they can be issued if provided for in the articles of incorporation.
7. Shortening of Notice Periods for Convening Shareholders’ Meetings, Board of Directors Meetings, etc.: This is stated when shortening the notice periods for convening meetings (e.g., two weeks in advance for shareholders’ meetings as stipulated by the Japanese Companies Act). This enables rapid decision-making.
8. Establishment of the Board of Directors, Accounting Advisors, Auditors, Audit & Supervisory Board, Accounting Auditors, and Committees: These are matters related to the company’s organizational design and are stated in the articles of incorporation when establishing these bodies. In particular, companies without a board of directors (such as companies with auditors or accounting auditors) need to clearly state this.

These relative provisions are essential tools for flexibly designing a company’s internal governance and operational methods. For foreign founders looking to expand their business in Japan and introduce specific governance structures or share management policies, it is crucial to appropriately include these matters in the articles of incorporation.

Optional Provisions: Elective Articles of Incorporation

Elective articles of incorporation refer to matters that the founders of a company in Japan can freely include in the articles of incorporation, as long as they do not contravene Japanese corporate law or public order and morals. These matters do not affect the validity of the articles even if they are not included. However, including them can clarify internal rules and prevent future disputes and ambiguities. This is particularly beneficial when founders with international backgrounds are involved, as eliminating ambiguities and documenting clear rules contribute to smooth company operations.

Some main examples of elective provisions are as follows:

1. Fiscal Year: This defines the accounting period of the company. For instance, it can be stated as “from April 1st of each year to March 31st of the following year.” This is important as it affects the timing of tax filings and financial statements and should be set in accordance with the business plan.
2. Number of Officers such as Directors: This specifies the exact number or the maximum/minimum number of officers, such as directors and auditors. Under Japanese corporate law, there must be at least one director, but specifying a number in the articles can stabilize the composition of officers.
3. Chairperson of the Shareholders’ Meeting: This specifies who will serve as the chairperson of the shareholders’ meeting. For example, a provision can be set that “the representative director shall serve as the chairperson,” which can facilitate the smooth operation of the meeting.
4. Convening Period for the Regular Shareholders’ Meeting: This specifies the period for convening the regular shareholders’ meeting held after the end of each fiscal year. For example, it can be set “within three months after the end of each fiscal year.”
5. Record Date: This specifies the date on which shareholders listed in the shareholders’ register can exercise certain rights (such as the right to receive dividends or voting rights).
6. Method of Public Notice: This specifies whether the company will make public notices via the Official Gazette, daily newspapers, or electronic public notice. If not specified in the articles, Article 939, Paragraph 4 of the Japanese Companies Act automatically applies the method of publication in the Official Gazette. Electronic public notice is adopted by many companies as it can reduce costs.

These elective provisions allow the founders of a company to establish more detailed internal rules that align with their management policies and actual circumstances. By clearly stating these in the articles of incorporation, companies can demonstrate their operational policies to internal and external stakeholders and enhance predictability.

Creation and Authentication Process of Articles of Incorporation Under Japanese Law

The creation and authentication of the Articles of Incorporation are critical legal steps in establishing a stock company in Japan. This process mainly consists of three stages: “drafting the Articles of Incorporation,” “booking an appointment with the notary public office,” and “authentication of the Articles of Incorporation.” For foreign founders, understanding this process is essential for a smooth company establishment.

Drafting the Articles of Incorporation

First, you must draft the Articles of Incorporation, which include the company’s trade name, purpose, location of the head office, amount of capital stock, and information about the incorporators, as well as the mandatory, optional, and relative provisions mentioned earlier. At this stage, it is crucial to consider the company’s future business development and management policies, ensuring that all necessary clauses are included accurately and completely. Particular attention should be paid to the description of the business purpose, as it can affect future business activities and requires careful consideration.

Booking an Appointment with the Notary Public Office

The authentication of the Articles of Incorporation takes place at the notary public office that has jurisdiction over the company’s head office location. It is common practice to book an appointment in advance, which can be done by phone or through the website of the Japan Federation of Notaries. It is essential to confirm the correct jurisdictional notary public office beforehand, as authentication cannot be received if the wrong office is approached.

Authentication of the Articles of Incorporation

On the reserved date and time, you must visit the notary public office with the necessary documents and the authentication fee to receive authentication by a notary. In principle, all incorporators should participate in the authentication of the Articles of Incorporation, but it is also possible to appoint a representative.

There are two main types of Articles of Incorporation:

• Paper Articles of Incorporation: The traditional written form of Articles of Incorporation. Paper Articles of Incorporation are subject to a stamp duty of 40,000 yen, and they must be printed, bound, and stamped with the seals of all incorporators at the seam of each page.
• Electronic Articles of Incorporation: Created in PDF file format and endowed with an electronic signature. The main advantage of electronic Articles of Incorporation is that they do not require the 40,000 yen stamp duty necessary for paper Articles. This can help reduce establishment costs. However, an electronic certificate for the electronic signature and specific data conversion software may be required.

In recent years, methods using online or web conferencing have also been introduced for the authentication procedures of electronic Articles of Incorporation. This provides significant convenience, especially for foreign founders living abroad, as it saves the trouble of visiting the notary public office in person. In the case of authentication via web conference, the notary confirms the identity and the intention to establish the company through the web conference. Authenticated electronic Articles of Incorporation data can be received via an online system or email.

If there are any deficiencies in the content of the Articles of Incorporation, the notary will request corrections. Minor deficiencies can be corrected on the spot, but significant deficiencies may require revising the Articles and visiting the notary public office again. Therefore, having a preliminary check by a professional during the drafting stage is very effective in facilitating a smooth procedure.

Documents Foreign Nationals Must Prepare for Articles of Incorporation Authentication in Japan

When foreign nationals establish a Japanese stock company and undergo the authentication of the articles of incorporation, they may need to prepare different or additional documents compared to Japanese citizens. Accurately preparing these documents in advance is essential for facilitating a smooth procedure.

Common Required Documents

First and foremost, regardless of whether the founder is a foreign national, the following documents are commonly required:

• Three copies of the Articles of Incorporation: Prepare a total of three copies for different purposes – one for the notary public’s office, one for the company’s records, and one for the registration application. If using paper Articles of Incorporation, the personal seals (jitsuin) and signature seals (kakoin) of all incorporators are necessary.
• Declaration of the Ultimate Beneficial Owner: This document declares the ultimate beneficial owner of the corporation to be established and asserts that they are not a member of organized crime or any antisocial forces. This is part of the measures against money laundering. In the case of a stock company, the ultimate beneficial owner is often the person who holds more than 50% of the total shares.

Identification Documents for Incorporators in Japan

When an incorporator is a foreign national, either a “Certificate of Seal Registration” or a “Signature Certificate” is required as identification documentation under Japanese law.

• Certificate of Seal Registration: Foreign nationals residing in Japan (those holding a Residence Card or Special Permanent Resident Certificate) can register their seal at the municipal office of their registered domicile and obtain a Certificate of Seal Registration. This certificate is widely used for various public and private procedures within Japan, such as real estate lease contracts, making it very convenient for foreign residents to have one registered.  
• Signature Certificate: Foreign incorporators residing overseas or those who have not registered a seal in Japan will need a Signature Certificate (Certificate of Signature) or a sworn affidavit with a verified signature as an alternative to the Certificate of Seal Registration. A Signature Certificate is an official document where a government official certifies that the signature is indeed that of the individual in question.  

Signature Certificates are generally obtained from government offices in the incorporator’s home country or from their country’s consulate or embassy in Japan. When acquiring one, the individual must bring the document to be signed and sign it in the presence of a consular officer or similar authority. Documents that have already been signed cannot be certified. For specific purposes, such as real estate registration in Japan, documents notarized by a U.S. notary public may also be accepted. Additionally, for identification verification at notary offices, photo identification such as a passport or Residence Card can be used. However, since it is difficult to directly authenticate the original passport or Residence Card, it may be necessary to have a copy authenticated at the notary office after confirming with the destination country.  

Power of Attorney (When Certification is by an Agent)

If it is difficult for all the incorporators to visit the notary office, they can delegate the procedure for the certification of the articles of incorporation to an agent. In this case, the following documents are required:

• Power of Attorney: A power of attorney from the incorporators to the agent is necessary. The power of attorney must include the incorporator’s registered seal (if they have registered a seal in Japan) or signature (accompanied by a certificate of signature).
• Certificate of Seal or Certificate of Signature of the Incorporator: Attach the incorporator’s certificate of seal (issued within the last three months) or certificate of signature that was used on the power of attorney. If the incorporator is a corporation, the corporation’s certificate of registered matters and the representative’s certificate of seal are required.
• Identification Documents of the Agent: The agent’s certificate of seal and registered seal, or a photo ID such as a driver’s license or passport along with a personal seal, are necessary.

When using a power of attorney created in a foreign language at a Japanese notary office, it is generally required to attach a Japanese translation for all documents. The translation must include the translator’s name and seal (or signature), and a statement that the document has been translated. The authentication fee for a power of attorney in a foreign language tends to be higher than for one in Japanese. Furthermore, when authenticating the translation, even if the original certificate is an official document, the translated document is treated as a private document. During notarization, the original official document, the translated document, and a declaration stating “I hereby declare that the attached document is a faithful translation of the ○○ certificate” are all authenticated together.

These complex document requirements can be a significant burden for foreign founders, especially when there are multiple incorporators residing overseas or when foreign-language documents need to be adapted for Japanese legal procedures. In such cases, the support of a specialized law firm is essential.

Summary

In establishing a Japanese stock company, the creation and certification of the articles of incorporation are extremely important processes that lay the foundation for subsequent business operations. This can be particularly challenging for foreign founders due to Japan’s legal system, language, and unique customs. Omissions in the absolute mandatory provisions can lead to the invalidity of the articles, while failure to include relative mandatory provisions may not produce the intended legal effects. Additionally, when certifying the articles, it is necessary to accurately understand and prepare for foreign-specific requirements, such as the differences between certificate of seal impression and signature verification, as well as the translation and certification of foreign-language documents.

Monolith Law Office specializes in corporate legal services in the IT and Internet sectors and actively supports international legal affairs and the entry of foreign companies into Japan. Our firm includes several attorneys who are native English speakers with foreign legal qualifications, providing seamless communication without language barriers and expert, practical advice on the Japanese legal system to our overseas clients.

We offer a wide range of legal support, from ensuring legal accuracy in the creation of articles of incorporation, to certification procedures at the notary office, and even to the creation of contracts for subsequent corporate operations, compliance with laws and regulations, and protection of intellectual property rights. Monolith Law Office is a strong partner for foreigners considering establishing a company in Japan, helping you to start and grow your business with confidence. If you have any inquiries about creating articles of incorporation or establishing a company in Japan, please do not hesitate to contact Monolith Law Office.