Sole Proprietor to Company in Japan: A Practical Guide for Foreign Entrepreneurs

After being a sole proprietor for some time, you may recognize that it’s time to incorporate. In that case, the filing process can be quick; however, preparation can take up to weeks or even months to complete. This guide will provide you with the right resources and steps from sole proprietor to company in Japan.

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Key Takeaways

• Kojin Jigyo is an unincorporated business that is managed by one person
• You need to take into consideration your visa and work eligibility, business activity, trademark, license, and taxes before applying to incorporate your business
• An incorporated business is a new taxpayer with its own accounting, tax filing, and payroll obligations.
• After incorporation, you are responsible for transferring your assets to your new company: Contracts, Physical & Digital assets, and IP

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What Is a Kojin Jigyo (Sole Proprietorship)?

A kojin jigyo (sole proprietorship) is an independent business owner or freelancer who directs a business on their own. This indicates that although the owner receives all the profit, they are responsible for the debts, losses, and liabilities. The advantage of being a sole proprietorship is that it is a low-cost, flexible setup. The disadvantage is that it makes you appear less credible and creates obstacles in securing loans. 

Who Can Operate as a Sole Proprietor in Japan?

Applying to become a sole proprietor is also flexible, as various visas are eligible for this status. 

• Permanent Residents
• Spouse of Japanese National visa holders
• Spouse of Permanent Resident visa holders
• Long-Term Residents
• Working Holiday visa holders
• Certain freelancers with qualifying visa arrangements
• Side businesses operated by work visa holders

If you are interested in more information about the sole proprietor application, we have an article that covers more details: Guide to starting a sole proprietorship in Japan as a foreigner

When Should You Incorporate Your Business?

Incorporation is a great step towards growing your business; therefore, it’s recommended that you balance out the pros and cons.

What You Should Consider Before Incorporation

Some questions to ask yourself and keep count of how many “yes’s” and “no’s” you answered: 

Category	Questions to Ask Yourself	Yes/No
Visa and Work Eligibility	Does your current visa status permit you to serve as a director of and run a corporation in Japan? (hard gate – see below)	☐ Yes ☐ No
	Can you update your immigration status to remain valid in your new role as a company director without jeopardizing your residency?	☐ Yes ☐ No
Business activity	Will the company carry out the same activities you already run as a sole proprietor, ensuring a smooth transition?	☐ Yes ☐ No
	Can you proceed without needing additional regulatory approvals for your products or services under the corporation?	☐ Yes ☐ No
Tradename	Have you settled on a company name, whether reusing your current trade name or choosing a new one?	☐ Yes ☐ No
	Is that name available and clear to register, with no conflicting registrations blocking it?	☐ Yes ☐ No
License	Have you confirmed that your existing licenses and permits can be transferred or re-obtained for the corporation? (In Japan, most licenses do not carry over automatically and must be reapplied for.)	☐ Yes ☐ No
	Can you complete any required new license applications without interrupting business operations?	☐ Yes ☐ No
Taxes	Can your current profits comfortably absorb both the upfront cost of incorporating and the ongoing corporate obligations, including the fixed per-resident corporate tax owed even in a loss year?	☐ Yes ☐ No
	Is your annual taxable profit high enough that corporate tax treatment would reduce, rather than increase, your overall tax burden?	☐ Yes ☐ No

The first question is a hard gate. If the answer is no, incorporation is not viable under your current status, regardless of how many other “yes” answers you have. Resolve visa eligibility

Scoring (out of 10)

• 8–10 “yes” → Incorporate. The path is clear on visa, activity, naming, licensing, and tax. Proceed.
• 5–7 “yes” → Hold and resolve gaps first. The fundamentals may work, but one or more blockers remain. Close them (or get a professional review) before committing.
• 4 or more “no” → Do not incorporate yet. Stay a sole proprietor for now and revisit once the unfavorable areas improve.

Situations Where Remaining a Sole Proprietor May Make More Sense

Sometimes, plans for incorporation should be held off for a while longer. 

• Early-stage businesses: Additional financial obligation and other responsibilities come with incorporating. If you are aware that your business cannot take on more, staying as a sole proprietor is the better choice because you can dedicate your time to refining your business.
• Side projects: If your sole proprietorship is a side hustle for supplemental income, incorporating will add additional expenses.
• Low annual profits: Expenses for running a corporation can outweigh your profit and tax advantages.
• Testing product-market fit: If you are unaware of the demand for your products or services, it is better to remain a sole proprietor so you can continue experimenting and improving them. 

How to Apply for Incorporation in 8 Steps

This eight-step process is governed by the Companies Act and administered across the Ministry of Justice, the National Tax Agency, and the Immigration Services Agency — each step carrying its own legal deadline and documentation requirements.

H3: Step 1: Kabushiki Kaisha (KK) or Godo Kaisha (GK)?

	Kabushiki Kaisha (KK)	Godo Kaisha (GK)
Entity Type	Joint Stock Company	Limited Liability Company
Cost	Starting at ¥200,000	Starting at ¥60,000
Administration Requirements	– Holding and documenting annual shareholder meetings. – Preparing shareholder resolutions. – Monitoring director terms and filing renewals when necessary. – Updating corporate registrations when officers change. – Maintaining more formal corporate records	– No legally required annual shareholder meetings. – No statutory director term limits. – Fewer registration updates with the Legal Affairs Bureau. – Simpler decision-making processes. – Less paperwork related to corporate governance.
Fundraising	Stock options and shares can be issued	Loans/capital Contributions are limited, shares are unavailable
Taxes	Same corporate tax rates	Same corporate tax rates
Time Length	1 to 2 months	2 to 4 weeks

If you are interested in more information regarding Kabushiki Kaisha (KK) vs Godo Kaisha (GK), feel free to read more about it in our Change Your Business Structure in Japan: GK to KK Guide Article. 

Step 2: Get Your Corporate Seals

The incorporator and the director must sign and affix their respective registered seals to the Articles of Incorporation. You must have three main seals.

1. Representative Director’s Seal (Daihyo-in 丸印): For key documents
2. Corporate Bank Seal (Ginkgo-in 銀行印): Bank-related documents
3. Company Seal (Kaku-in 角印): Daily Business documents

You would only have to register the Representative Director’s Seal with the Legal Bureau.

Step 3: Articles of Incorporation

These are important documents that structure and organize the company’s activities and must be filed with the Legal Affairs Bureau. 

What is required in the documents is:

1. Trade Name
2. Business Proposal
3. Office Location
4. Capital 
5. Founder(s) Details (address, date of birth, etc.)
6. Share Structures
7. Value of Company

Step 4: Capital Deposit

The capital deposit must be shown to the Legal Affairs Bureau with the transfer of capital to the bank account of the incorporator, as the company’s bank account has not yet been established. It is important that you document everything to ensure full payment. Keep a copy of a bankbook or online banking statement, as it must be submitted. 

Step 5: Apply for Registration at Legal Affairs Bureau

What must be submitted to the Legal Affairs Bureau is:

• Application for company registration
• Articles of Incorporation (Teikan 定款)
• Certificate of seal registration (Inkan Toroku Shomeisho)
• Capital deposit proof
• Office lease agreement
• Founders’ personal ID and signature forms
• Company seal impression form
• For KK: Notarized Articles must be included
• Director Appointment Resolution (for KK)

Step 6: Register with the Tax Office

You must also send the corporate registration information, articles of incorporation, and corporate details to the national tax agency, prefectural tax office, and municipal tax office. This must be completed within 2 months of incorporation. 

Step 7: File Haigyo Todoke 廃業届 

A Haigyo Todoke is an official notification informing tax authorities that your sole proprietorship is coming to a close. This document can be filed in person, by mail, or online via e-Tax software. It is advisable to submit the document at the time of closure, but there is no penalty for late filing. 

Link to the application form Notification of Business Opening/Closure Form (廃業届出書)

Step 8: Social Insurance

Once you are registered, you are required to enroll your company in employer-sponsored insurance programs. You must file the Notification of New Application, Insured Qualification Acquisitions, and Labor Insurance. There are 5 types of social insurance you must have in your incorporation.

Health insurance covers medical treatment, medication, maternity benefits, sickness and injury benefits, and dependents. All employees and corporate directors receive this. There can be an exemption for part-time employees in certain cases.

Employee pension insurance helps build retirement, disability, and survivor benefits for family members and supplements the basic National Pension. All employees and corporate directors have to be enrolled in this program, and higher director compensation increases pension contributions. 

The Labor Insurance is divided into two pillars: Employment Insurance and Workers’ Accident Compensation Insurance. Employment Insurance provides unemployment benefits, childcare leave, family care leave, and certain training and education subsidies. You are responsible for enrolling qualifying employees into this program. Directors are not eligible for this program. Workers’ Accident Compensation Insurance provides medical treatment and lost wages due to workplace injuries or illnesses. Every worker must be enrolled in this program.

5 Steps on Tax Procedure After Incorporation

This can be completed in 30 days after incorporation

Step 1: Register a Payroll Office

Once you receive the company’s registration certificate, you must separately register your salary-paying office and any other payroll notifications within the 1st month of establishment and before the first director’s compensation is paid. You must turn in this application to your local tax office. 

Once the salary-paying office filed, it enabled:

• Income tax withholding: The money that is deducted from the employee’s wages and directed to the government.
• Year-End Adjustment: At the end of each year, the tax amount deducted from each worker is adjusted. If the amount deducted from an employee was more than it should have been, they will receive a refund. Or if too little was deducted, then a certain amount is deducted from their pay. 
• Withholding Tax Payment Deadlines: For smaller businesses with fewer than 10 employees, the payments can be made twice a year. Meanwhile, larger businesses with more employees must pay monthly. 

The application to register is linked here: Salary Paying Office

Step 2: Apply for Blue Return Status

Before you apply, it is important to record the status of daily transactions related to the earnings and necessary expenses. Also, put the transaction and payment documents in safekeeping, as you will need them for the application. Once you have all of your items, you must submit an Application for Filing the Blue Return to a District Director of Tax Office. As you are starting a new company, this application must be submitted within 3 months of the business’s establishment or by the day before the last day of the first fiscal year. Although this is an optional step, it is highly advised that you apply as there are various benefits such as:

• Special exemption for blue returns
• Salary payments to family employees exclusively engaged in the business of blue return filers
• Allowance for uncollectible receivables
• Carry-over and carry-back of net losses

Step 3: Open a Corporate Bank Account

This is an essential step that you must do as soon as possible, as it separates your corporate and personal finances.  

The necessary documents needed to apply are:

• Certificate of Registered Matters of the corporation
• Identification documents of the person in charge of the transaction
• A Bank Seal

Along with these documents, a foreign entrepreneur must fulfill extra steps to be approved for a corporate bank account. You must submit a business plan, projected revenues, contracts, or websites, and evidence of sufficient capital. 

Once you have all the paperwork, you can apply online to a bank that accepts your initial capital. After they have reviewed your documents, they will notify you of your approval or denial. If approved, you will either have to go to the branch in person or be scheduled for an online interview. They will then mail you your bankbook, cash card, and tokens. 

For more details on corporate bank accounts, feel free to read our article: Guide to a Corporate Bank Account in Japan (2026 Updated)

Step 4:Establish the Company’s Accounting System 

You need to open a separate bookkeeping system within the timeframe provided by the Ministry of Justice. There are two categories of accounting books: the journal and the general ledger. The journal records all of the company’s transactions in chronological order. The general ledger structures the transactions from the journal. Furthermore, electronic bookkeeping is now mandatory in Japan because it reduces the risk of tampering and preserves tax documents. 

For more information, we have an article on accounting: Tax Accountant in Japan: 2025 Guide for Foreigners & SMEs

Step 5: File the Company’s First Corporate Tax Return

• Corporate tax = the primary national tax levied; the tax rate depends on paid-in capital and annual taxable income. You file this tax with the National Tax Agency (NTA) and must submit it two months after the end of the fiscal year. 
• Local corporate taxes = national tax levied on corporate tax amounts; the pay rate is a fixed percentage of the corporate tax amount. You file this tax with the National Tax Agency (NTA) and must submit it by the end of the fiscal year. 
• Corporate inhabitant tax = the pay rate is levied on the basis of the company’s capital and employee tax base. You file this tax with the Prefectural and municipal tax offices and must submit it at the end of the fiscal year.
  • Per Capital Levy = fixed annual amount, and is a tax on the company’s existence. The amount is determined by the company’s capital and the number of employees.
• Consumption tax: This depends on the company’s capital at the time of incorporation. Newly established corporations are only exempt from consumption tax if their capital is less than ¥10 million at the start of their first two fiscal years. You file this tax with the National Tax Agency (NTA) and must submit it two months after the end of the fiscal year. 

If you would like more information regarding taxes after incorporation, we have an article on that: Tax Office Notifications after Incorporation in Japan

Transferring Assets: An Overlooked Step

Most people believe that all the work is done after their company is incorporated; however, transferring assets and other items is an essential post-incorporation procedure. This is typically completed 90 days after incorporation

Create a Checklist of Everything that is Owned

Before you start transferring, it is advisable to organize your owned business items into a checklist. The checklist should consist of: 

Contracts	Client Agreement
	Consulting contracts
	Supplier agreements
Assets	Business equipment
	Computers
	Office furniture
Digital Assets	Domain names
	Websites
	Software
	Source code
Intellectual Property	Trademarks
	Logos
	Marketing materials
	Proprietary processes

Obtain Client and Supplier Consent

When transferring client and supplier contracts from your sole proprietorship to your new company, Article 539-2 of the Japanese Civil Code requires the consent of all parties. You must first notify your clients and suppliers of the change, then create a legal transfer agreement or contract amendment that the parties must sign. 

Transfer Business Assets, Intellectual Property, Domain Names, and Online Accounts

Business assets are typically transferred in three different ways: sale to the company, contribution to the company, or assignment agreement. 

Most people choose to sell their assets to the company, such as inventory and equipment. If you are choosing to do this, remember to document every single item, from the capital value to the date it was transferred. 

It is more common to sell the asset, but when you contribute an asset to the company, you are exchanging it for ownership interests. KK or GK is issuing equity to you rather than cash. Some assets include computers, laptops, office furniture, and other physical assets. 

Most intellectual property falls into the assignment agreement asset category. Intellectual property includes website ownership, software code, logos, and other IP assets. The agreement must clearly state that ownership is being transferred from the individual to the company.

Domain Names and Online Accounts are often registered in the founder’s personal name. It is important that you update all your information to reflect the corporation. You should review and update: 

• Domain registrations
• Hosting accounts
• Cloud platforms
• SaaS subscriptions
• Payment processors
• Advertising accounts

Update Invoices and Business Documents

All business documentation should reflect the new company’s brand. You must include your name, company logo, tax ID, and physical/digital contact points in your business activity documentation. For invoices, update the header, business registration number, and payment remittance. Contracts are valid, but you should still consider updating the name when you renew them. 

Final Thoughts

The process of transitioning from a sole proprietorship to a company is lengthy and requires various steps. Typically, the biggest challenge is successfully transferring the business. Nonetheless, this is a substantial measure towards growing your company. 

To help reduce the stress, SmartStart Japan is here to help. With 8+ years of experience and over 100 companies, we have helped with incorporation and can handle your standard or special case. Feel free to take advantage of our free 30-minute consultation so you can start your planning incorporating today.