Setting up companies in Japan is getting easier as the government tries to encourage more people to become entrepreneurs.
Incorporating a company of a certain size basically requires either 3 million yen or 10 million yen in capital. Firms of those sizes are entitled to a legal and social status that more personal types of companies do not enjoy.
But a temporary law that took effect in February 2003 lowered the required capital to just 1 yen.
The legislation, valid for five years, has proved popular with would-be entrepreneurs. The number of firms set up under the law reached 18,514 as of Nov. 26, according to the Ministry of Economy, Trade and Industry. Of them, 849 companies were founded with capital of exactly 1 yen.
“I think the popularity shows that the 3 million yen and 10 million yen requirements were barring people” from establishing companies, said Yasuhiko Ando, assistant director at the industrial revitalization division at the ministry.
Firms established under the new law must raise their capital to normal levels within the first five years or lose their company status. But the government plans to submit a bill proposing the Commercial Code be amended to scrap the requirements next year.
Some legal experts warn that relaxing capital thresholds will undermine the credibility of small businesses by unleashing hoards of irresponsible entrepreneurs and fly-by-night operations. It would also fuel the overflow of dummy companies as well, which are used for tax evasion and other crimes, they say.
“If incorporation is made easy, giving up one’s business becomes easy as well,” and that can put creditors, investors and customers all at high risk, said Keio University law professor Tsukasa Miyajima.
The warning may not apply to Saburo Kinoshita, 35, who set up a firm capitalized at 1 yen in July 2003 to start a restaurant in Tokorozawa, Saitama Prefecture. He said he chose the minimal amount to attract media attention — a tactic that apparently worked.
Starting a business can cost a lot more than capital. Kinoshita spent about 25 million yen to open his restaurant and some 200,000 yen to have his company registered.
Monthly sales at his restaurant run 4 million yen on average, well above the initially projected 3 million yen. He plans to increase his capital to 3 million yen next year.
“I think the amount of capital, regardless of if it’s 1 yen, does not affect the credibility of a company as long as you act in good faith to meet the payment date,” he said.