Annual Compliance for a Japanese KK: The Yearly Checklist

The answer

After each fiscal year, a kabushiki kaisha (株式会社, KK) prepares its financial statements and business report, has its shareholders approve the financial statements at the annual shareholders' meeting, and publishes its balance sheet. Its corporate tax return is due within two months after the year end. Each time a director's term of office ends, the company registers the change within two weeks, even when the same person is reappointed.

A KK that restricts share transfers can set directors' terms of up to ten years. That suits a company run by its owner, while a startup with co-founders or outside investors is generally better served by a shorter term.

This article covers a KK with no board of directors, no company auditor and no accounting auditor.

Financial statements

For each fiscal year, the company must prepare its financial statements (the balance sheet, the profit and loss statement and the other statements set by Ministry of Justice ordinance), a business report, and supplementary schedules to them (Companies Act, 会社法 Kaisha-hō, Art. 435(2)). They can be made as electronic records (Art. 435(3)). The financial statements and their supplementary schedules must be kept for ten years from when they are prepared (Art. 435(4)).

The annual shareholders' meeting

The annual shareholders' meeting must be called within a set period after the end of each fiscal year (Art. 296(1)). In a KK without a board or auditors, the directors submit the financial statements and the business report to that meeting. The financial statements need the meeting's approval, and the directors report what the business report says (Art. 438(1)(iv), (2) and (3)). Minutes must be prepared and kept at the head office for ten years (Art. 318(1) and (2)).

The meeting does not have to be held in person. If every shareholder with a vote agrees in writing or electronically to a proposal, the resolution is treated as passed (Art. 319(1)). If the directors notify every shareholder of a matter to be reported and every shareholder agrees in writing or electronically that it need not be reported, the report is treated as made (Art. 320). When every proposal on the agenda is treated as passed in this way, the annual meeting is treated as concluded (Art. 319(5)). For a subsidiary with a single parent shareholder, this is how the meeting is usually done. The written consents must be kept at the head office for ten years (Art. 319(2)).

Publishing the balance sheet

Promptly after the annual meeting ends, the company must publish its balance sheet (Art. 440(1)), unless it files annual securities reports (Art. 440(4)). The articles of incorporation may choose the method of public notice from the Official Gazette, a daily newspaper or electronic public notice, and a company whose articles do not choose one uses the Official Gazette (Art. 939(1) and (4)). A company that uses the Official Gazette or a daily newspaper may publish a summary of the balance sheet instead of the full statement (Art. 440(2)), or instead keep the balance sheet available online for five years (Art. 440(3)).

The corporate tax return

A Japanese company must file its final corporate tax return with the tax office within two months from the day after the end of each fiscal year, based on the accounts settled for that year (Corporation Tax Act, 法人税法 Hōjinzei-hō, Art. 74(1)). The balance sheet and the profit and loss statement are attached to the return (Art. 74(3)). If the articles of incorporation mean the annual meeting is not normally called within those two months, the company can apply to the tax office for a one-month extension (Art. 75-2(1)).

Directors' terms and registration

Directors are elected by a resolution of the shareholders (Companies Act, Art. 329(1)). A director's term ends at the close of the annual meeting for the last fiscal year ending within two years after the election (Art. 332(1)). A KK whose shares cannot be transferred without the company's approval can extend this to ten years in its articles (Art. 332(2)).

The names of the directors, and the name and address of the representative director, are on the company register (Art. 911(3)(xiii) and (xiv)). When a registered matter changes, the company must register the change at its head office within two weeks (Art. 915(1)). The Ministry of Justice's sample application form for a KK whose officers are all reappointed when their terms end treats the reappointment as a change to be registered.

Directors who fail to make a required registration or give a required public notice can be fined up to JPY 1 million as a non-criminal fine (Art. 976(i) and (ii)).

Two years or ten

A director can be removed at any time by a resolution of the shareholders (Art. 339(1)). Unless there is a justifiable reason for the removal, the director can claim damages from the company (Art. 339(2)). The usual claim is for the pay the director would have received for the rest of the term, and the Tokyo District Court's sample complaint for such a case computes the damages from the director's monthly pay. A director removed early in a ten-year term can therefore claim far more than one removed under a two-year term.

When the owner is the only shareholder and director, nobody is going to be removed, and ten years is the natural choice. The company then registers its directors once a decade instead of every two years, and each registration of a change in officers costs JPY 10,000 in registration and licence tax for a company with capital of JPY 100 million or less. With a long term, though, the registration in the renewal year is easy to forget. A KK with no registration for 12 years is treated as dormant, and it is deemed dissolved unless, within two months after the Minister of Justice's public notice, it files a notice that it is still in business or a registration is made for it (Art. 472(1)).

If co-founders of a startup fall out, a short term lets the shareholders decline to reappoint a director when the term ends, and since that is not a removal, the claim for damages under Article 339(2) does not arise. One or two years suits a company with outside shareholders or directors, and where several people start a company together, short terms combined with a founders' agreement can help prevent disputes. If the company later abolishes its share transfer restriction, every director's term ends when that change takes effect (Art. 332(7)(iii)).

References

• Companies Act (Act No. 86 of 2005), Japanese Law Translation.
• Companies Act (Act No. 86 of 2005), Arts. 296, 318, 319, 320, 329, 332, 339, 435, 438, 440, 472, 911, 915, 939 and 976; Corporation Tax Act (Act No. 34 of 1965), Arts. 74 and 75-2 (e-Gov, Japanese).
• Ministry of Justice, Legal Affairs Bureau, 株式会社変更登記申請書 sample form for a KK with a board of directors whose officers are all reappointed (Japanese).
• Tokyo District Court, 記載例 for a claim for damages by a removed officer under Art. 339(2) (Japanese).
• National Tax Agency, Tax Answer No. 7191, 登録免許税の税額表 (Japanese).

This article is for general information only and is not legal or tax advice.

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