Seventh Sense Group

Akasaka 2-12-10

Tokyo, 107-0052

Monday to Friday

9:00 ~ 18:00

Company Formation from Sole-proprietorship (法人成り)

Want to know more about establishing a company in Japan? Check out our video and get in touch with us at Seventh Sense Group!

Normally, starting a new company means starting from scratch.

However, if you already have a business as a sole-proprietor, you can transfer your assets (cash, money in bank, receivables, etc.) and liabilities (payables) to your new company. It is called Hōjin nari/法人成り in Japanese.

The procedure for establishing a company from sole-proprietor is not really different from establishing a brand new company, but the accounting will be more complex.

We will also briefly explain the advantages and disadvantages of setting up a company for sole-proprietors!

Advantages

Lower tax rate

The Japanese income tax rate is up to 45% plus 10% for inhabitant tax, making a total of 55% (excluding the special income tax for reconstruction). The higher your income, the higher the tax.

Manageable financial year

Unlike individuals, whose fiscal year is fixed (the same as the calendar year), companies can choose their fiscal year when they establish. The deadline for companies to file their tax return is within 2 months after their fiscal year ends. For example: Company A – FYE in April → Corporate TR is due by June 30.

Limited responsibility

Sole-proprietors must take responsibility for business even with their personal assets, whereas shareholders or equity owners are only responsible up to the amount they have invested.

Disadvantages

Company incorporation fee

When registering a company, each step costs money, such as ordering company seals, preparing articles of incorporation, etc.

Minimum tax requirement

Even if your balance is in the red, there is a tax that you must pay, starting at 70,000 yen.

More regulations

There will be more administrative work and regulations for the company. The most common example can be rules for Director’s salary. Director’s salary and bonus can only be deducted as expenses if they meet certain requirements.

If you wish to know more about company formation (from sole-proprietorship), please do not hesitate to contact us at Seventh Sense Group.

This information is for general informational purposes only and should not be considered as professional advice. Please consult with a qualified professional for any specific questions you may have.

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