As the third largest economy in the world, Japan is a major player in the global business landscape. It is also a country with a unique business culture shaped by its history, social norms, and legal system. In this article, experts like Kavan Choksi will provide an introduction to Japan’s business laws and regulations, covering topics such as company formation, contracts, employment, intellectual property, and taxes.
Company Formation
Starting a business in Japan requires complying with various legal requirements, depending on the type of business and its size. The most common types of business entities in Japan are the sole proprietorship, partnership, and corporation.
Sole proprietorship: A sole proprietorship is a business owned and operated by a single individual. It is the simplest and least expensive form of business to set up, as it requires no registration with the government. However, the owner of a sole proprietorship is personally liable for all debts and obligations of the business.
Partnership: A partnership is a business owned by two or more individuals or entities. The most common types of partnerships in Japan are the general partnership, limited partnership, and limited liability partnership. Partnerships are relatively easy to set up and offer some legal protection to the partners, but they also have some drawbacks, such as the need for mutual decision-making and the potential for disputes between partners.
Corporation: A corporation is a legal entity separate from its owners, which can be either individuals or other entities. The most common types of corporations in Japan are the kabushiki kaisha (KK, or stock corporation) and the godo kaisha (GK, or limited liability company). Corporations offer the greatest legal protection to their owners, as they are not personally liable for the debts and obligations of the business. However, they also have the most complex legal and regulatory requirements, including the need for board meetings, annual general meetings, and audits.
Contracts
Contracts are a crucial part of doing business in Japan, as they establish the terms and conditions of the relationship between the parties involved. Japanese contract law is based on the Civil Code, which sets out the general principles of contract formation and performance. Some key features of Japanese contract law include:
- Freedom of contract: Parties are generally free to negotiate and agree on the terms of a contract, as long as they are not illegal or contrary to public policy.
- Formal requirements: Certain types of contracts, such as those involving real estate or securities, must be in writing and may require notarization or registration.
- Good faith: Parties are expected to act in good faith and deal with each other honestly and fairly.
- Unilateral termination: Unless otherwise agreed, either party can terminate a contract by giving reasonable notice to the other party.
Employment
Employment law in Japan is governed by the Labor Standards Act and other related laws and regulations. Some key aspects of Japanese employment law include:
- Working hours and overtime: The maximum number of working hours per week is 40 hours, with overtime generally allowed up to 45 hours per week. Overtime must be paid at a higher rate, and employees who work more than a certain number of overtime hours per month are entitled to additional time off.
- Leave: Employees are entitled to various types of leave, including annual leave, sick leave, and family leave.
- Termination: Employers can terminate the employment of an employee for just cause, such as misconduct or poor performance. Otherwise, the employer must follow certain procedures, such as giving advance notice and paying severance.
- Discrimination: Employers are prohibited from discriminating against employees on the basis of race, gender, age, and other characteristics.