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Setting Up An NPO In Japan

Let the experts at the Shinonome Group guide you on how to set up an NPO.

By 4 min read

Many jurisdictions allow for the creation of non-profit organizations (NPO), an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing that surplus income to its shareholders in the form of profits or dividends. Often times, NPOs function as a charity or service organization, the goal not to be successful in terms of wealth, but in terms of giving value to the groups of people they serve.

NPOs (tokutei hi-eiri katsudo hojin) may also be created in Japan. They can however be rather cumbersome to incorporate and may not be the best choice for everyone. Incorporating an NPO requires a minimum of ten members (kai-in). These “members” refer to persons (or entities) that support the activities of the organization and may actively participate in the governance of the organization through general meeting voting rights.

Its leadership consists of at least three Governors (riji) and one Auditor (kanji). These NPO officers can also be members, although it is not a requirement. Therefore, without at least ten individuals, it is not possible to create an NPO. Additional legal restrictions on the number of governors that can be blood related to each other can also cause difficulties in meeting the “people requirement” for an NPO.

Next is the length of time needed to incorporate and register an NPO. As opposed to regular companies and other corporate entities which usually only require registration with the Legal Affairs Bureau (homukyoku), an NPO must also be approved by the local NPO regulatory body with jurisdiction over the address where the NPO is registered. When scheduling, at least one month should be allowed for the creation of documentation, four months for approval of the Articles of Incorporation and one month for registration. For this reason, it is generally recommended to allow for about six months to register an NPO.

Once an NPO is incorporated, an annual report must be submitted to the local NPO regulatory office, and similarly anytime there are amendments made to the Articles of Incorporation or a change in the officers, a notice must be filed.

An NPO is given certain preferable tax treatment in that only its for-profit business revenue is subject to income tax. NPOs that satisfy certain conditions may be able to apply as a certified NPO (nintei NPO). As a certified NPO, tax benefits are given to donors to the NPO which has the advantage of making it easier to collect donation money. However, to apply for certified NPO status, a number of conditions must be met. Among these are the Public Support Test (PST) which requires that the NPO receives at least 100 donations in the amount of 3,000 yen or more in a year and the requirement that overall spending on activities benefitting the NPO members do not exceed 50% of the total NPO activities.

Accordingly, the NPO may not be the right solution for everyone. In 2006, Japan enacted a series of new laws regarding non-profit entities which came into effect in December 2008. One of the new entity types resulting is what is known as an ippan shadan hojin, or a “General Incorporated Association” (we will refer to it as an “SH” in this article).

If you operate a small club or group of people with a common goal whose purpose is not to make a profit but still wish to acquire corporate status, the SH may be an alternative for you. By becoming an incorporated association, you will be able to open bank accounts, rent property and enter into contracts under a corporate name. Being a legally recognized entity, the SH can be used to register .jp domain names.

The SH can be incorporated with no registered capital and its business activities are not restricted to being for “public interest.” Also, an SH can be setup with as few as two members, as opposed to the minimum ten for an NPO. The SH is also characterized by being relatively quick and easy to incorporate. The new laws provide that an SH is governed under rules similar to that of regular corporations with Governors and Auditors as its officers.

The revenues earned by an SH are in principle taxed the same as a regular corporation. However, an SH can also be set up as a “pure non-profit” type SH by providing certain regulations in its Articles of Association including those that specifically state that profits will not be distributed to its Members and that the assets of the SH will be given to the government or other non-profits with a similar purpose in the event of its dissolution. As a “pure non-profit” type SH, revenues earned from its non-profit, business activities are not subject to corporate tax. In fact the “pure non-profit” type SH is taxed similar to a regular NPO entity, and given its relative ease in incorporation as compared to an NPO, is an attractive option to those considering operating an non-profit type entity.

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