Regulation of Continuous Transactions by Foreign Companies in Japan

I. Introduction

The Companies Act of Japan (the “Act”) regulates the conduct of continuous transactions by foreign companies1 in Japan. In particular, foreign companies that do not have any form of office in Japan, but intend to carry out transactions continuously in Japan by themselves must first appoint and register at least one resident representative in Japan.2 Foreign companies are prohibited from engaging in continuous transactions before completing the registration process.3 Certain disclosure and other obligations must also be observed by such foreign companies. This article discusses the requirements that must be met by foreign companies without offices in Japan.

II. Meaning of Continuous Transactions

There are no clear official guidelines as to what would constitute “continuous transactions.” However, they may be understood to mean commercial transactions that are carried out pursuant to a specific plan, and are not incidental or isolated in nature.4 To determine whether a certain transaction is a continuous one, the main issue would be whether the transaction is a part of a continuous business activity being carried out in Japan. Thus, the nature and other circumstances of the transaction must be examined. For instance, a mere fund raising activity done by the issuance of bonds by a foreign company to investors in Japan would not qualify as a continuous transaction. However, a two-year retail franchise contract could be considered a continuous transaction. The number of transactions is also one of the factors that should be considered albeit it is not a decisive one.

III. Appointment and Resignation of Representatives

To directly engage in continuous transactions without establishing a subsidiary or branch in Japan, Article 817 (1) of the Act requires a foreign company to specify one or more of its representatives in Japan and at least one of them must be a resident of Japan. Thus, a foreign c ompany must appoint at least one residen t representative in Japan. Regulation of Continuous Transactions by Foreign Companies in Japan

  1. A “foreign company” is broadly defined as any juridical person incorporated under the laws of a foreign country, or any other foreign organization that is similar to a Japanese stock company, general partnership company, limited partnership company or limited liability company (The Act, art. 2(i) and (ii)).
  2. Id., art. 817(1).
  3. Id., art. 818(1).
  4. Minoru Tokumoto, Tikujo Kaisetsu Kaishaho 9-kan, Gaikoku Kaisha, Zassoku, Bassoku [A Commentary on the Companies Act Vol.
    9-foreign company, minor regulations and penal regulations], Toshio Sakamaki and Misao Tatsuta, Chuokeizaisha, 2016, 11-12.

If all of its resident representative(s) intend to resign, then the foreign company must comply with a procedure that is meant to protect its creditors in Japan. It must give public notice to its creditors through the official gazette as well as individual notices to any known creditors informing them that they can state their objections, if any, within a certain period of at least a month. If any creditor raises an objection within the said period, then the foreign company must make a payment or provide a reasonable security to such creditor, or entrust property equivalent to such payment to a trust company or any other financial institution that is engaged in the trust business for the purpose of making the subject payment to such creditor, unless there is no risk of harm to such creditor from the resignation of the resident representative(s). After carrying out this procedure, the resignation of the resident representative(s) will become effective by completing the registration of such resignation.

Since at least one representative must be a resident, the above procedure must also be observed if all of the resident representatives of the foreign company lose their status as residents in Japan.

IV. Matters to be Registered.

The following matters must be registered by the foreign company within three weeks from the appointment of the representative(s) at the Legal Affairs Bureau having jurisdiction over the place where each of its resident representatives or its sole resident representative lives in Japan:6

  • its basic corporate information, including its business purpose(s), trade name, addresses of the head office and branch office(s), capital, shares, owner(s), governance structure, representative officer(s), and term of existence or grounds for dissolution;
  • (ii) the law governing its incorporation;
  • (iii) the name(s) and address(es) of its representative(s) in Japan; and
  • (iv) its method of giving public notice.

Changes to the matters registered must also be registered within three weeks from any such change. For registrable matters that arise in a foreign country outside Japan, the registration period will be counted from the date notice thereof reached a representative of the foreign company in Japan.

The failure to complete the required registration or to disclose matters required under the Act may subject the representative(s) of the foreign company to a civil fine of up to one million yen.

V. Authority of the Representative

In general, a representative has the authority to perform all judicial and extrajudicial acts on behalf of the foreign company in connection with the latter’s business in Japan. Thus, a foreign company will be held liable for any damage caused to any third party by its representative in Japan during the course of the performance by such representative of his/her duties.10 The foreign company may limit the authority of such representative. However, any such limitation cannot be asserted against a third party in good faith (i.e., one with no knowledge of such limitation).

11 5. The Act, art. 820.

  1. Id., arts. 933(1)(i) and (2), and 934(1).
  2. Id., arts. 915(1) and 933(4). See also art. 935(1) regarding the change of a representative’s address.
  3. Id., art. 933(5).
  4. Id., art. 976(i) and (iii).
  5. Id., art. 817(2) and (4).

VI. Duty and Method of Giving Public Notices

After the registration process, the foreign company must promptly give public notice in Japan of a financial document that is equivalent to a balance sheet after it is approved by its shareholders in an annual shareholders’ meeting or a similar approval procedure.12

There are three general ways of giving public notices in Japan, namely, publication in an official gazette (i.e., the Kanpo), publication in a daily newspaper, or an electronic public notice (e.g., webpage).13

A foreign company registered in Japan may give public notices based on the method stated in its articles of incorporation or other organizational document. If no notification method is stated in such document or otherwise selected by the foreign company, then its notices shall be published in the official gazette.14

If the foreign company wishes to publish its financial document by electronic public notice, it must keep such notice for five consecutive years following the date of approval of the financial document in an annual shareholders’ meeting or a similar procedure.15

If a foreign company’s representative in Japan fails to comply with the public notice requirements under the Act or does so improperly, then such representative may be subject to a civil fine of up to one million yen.16

VII. Noncompliance with Registration Requirements

The failure by a foreign company to comply with the registration requirements of the Act before engaging in continuous transactions will give rise to several consequences.

Under Article 818(2) of the Act, any person who carries out the subject continuous transactions on behalf of the foreign company will be liable, jointly and severally with the foreign company, to perform any obligation that has arisen from such transactions to the counterparty to such transactions. Such person may also be punished by a civil fine of an amount equivalent to the registration and license tax for the incorporation of a company.17

These consequences usually fall upon the representative or other agent of the foreign company.

Moreover, if petitioned to do so by the Minister of Justice, a creditor or any other interested party, a Japanese court may order the foreign company to stop carrying out the continuous transactions in Japan based on certain grounds, including when the foreign company stops payment without justifiable grounds, or where its representative in Japan or any other person executing its business is continuously or repeatedly committing an act that goes beyond or abuses the authority of the foreign company as prescribed by laws and regulations, or violating criminal laws and regulations, despite receipt of a written warning from the Minister of Justice.18

  1. Id., art. 817(3).
  2. Id., art. 819(1).
  3. Id., art. 939(1).
  4. Id., art. 933(2)(vii) and 939(2).
  5. Id., art. 940(2).
  6. Id., art. 976(ii).
  7. Id., art. 979(2). This civil fine is distinct from that of up to one million yen under Article 976(i) of the Act for failing to complete the registration requirement.
  8. Id., art. 827(1).

VIII. Conclusion

In sum, foreign companies that are contemplating engaging directly in continuous transactions in Japan but without establishing offices in the country must appoint at least one resident representative, and observe and comply with the registration and other obligations under the Act.

 

So Miyamoto                                                     Miriam Rose Ivan L. Pereira

miyamoto@ohebashi.com                          mlpereira@ohebashi.com

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