Contracts and company law essentials in Japan

Governing law, language and forum

Japan is a civil law jurisdiction. The Act on General Rules for Application of Laws lets parties choose the governing law of a contract, and Japanese counterparties generally expect Japanese law with the Tokyo District Court or arbitration at the Japan Commercial Arbitration Association. Foreign law is accepted in cross-border licensing and supply agreements, but mandatory Japanese rules on labour, consumers and subcontracting apply regardless.

Court proceedings are conducted in Japanese and foreign-language documents must be translated. Bilingual contracts with a prevailing-language clause are the norm for cross-border work. Registry filings, board minutes and shareholder minutes must be in Japanese.

Seals, e-signatures and stamp tax

Japanese companies traditionally execute contracts with the company's registered seal (jitsuin), proven by a seal certificate from the Legal Affairs Bureau. A signature by the representative director is equally valid for a contract, and electronic signatures have statutory recognition. The Act on Electronic Signatures and Certification Business defines an electronic signature as a measure showing that the information was created by the signatory and allowing alteration to be detected, and Article 3 presumes an electronic record authentic where it bears an electronic signature that only the principal could have made. Guidance issued by the government in 2020 confirmed that cloud-based signing services meet the test where the service verifies identity and the process is secure, which is why DocuSign-style signing is now common.

Two practical points: electronic contracts are not subject to revenue stamp tax, while certain paper contracts are, so e-signing saves money as well as time; and registry filings and notarial deeds still use seals or specific electronic certificates. The 2020 Civil Code reforms modernised limitation periods, contract non-conformity liability and standard terms, and should be reflected in any template older than that.

KK or GK, and what the Companies Act requires

The kabushiki kaisha (KK) is the standard operating and fundraising company; the godo kaisha (GK) is simpler and cheaper but has membership interests rather than shares and cannot issue stock acquisition rights, which rules it out for employee equity. Directors of a KK owe a duty of care of a good manager and a duty of loyalty, and conflict-of-interest and competing transactions need board or shareholder approval. A representative director need not live in Japan.

Ordinary shareholder resolutions pass by a majority of votes present with a quorum of a majority of voting rights; special resolutions need two-thirds of votes present. Most private KKs restrict share transfers in their articles, so a transfer needs board or shareholder approval and takes effect against the company on entry in the shareholder register. There is no stamp duty on share transfers, and a change of KK shareholders is not filed with the registry, whereas a GK member change is.

The commercial registry extract is the standard proof of corporate authority and lists the representative director, capital and the transfer restriction. Counterparties ask for it, and so do banks.

Contracts that involve personal data must reflect the Act on the Protection of Personal Information (APPI), which requires a legal basis and, for transfers outside Japan, either the recipient's adequacy (the EU and the United Kingdom are recognised) or contractual safeguards and disclosure to the individual. Services agreements and intercompany agreements with a Japanese entity therefore carry a data schedule, and the Personal Information Protection Commission publishes guidance on the required content.

Employment: 30 days' notice is not enough

The Labour Standards Act requires at least 30 days' notice of dismissal or payment of average wages for the shortfall (Article 20); the probation exception applies only during the first 14 days of employment. Notice, however, does not make a dismissal lawful. Under Article 16 of the Labour Contract Act a dismissal that lacks objectively reasonable grounds and is not socially appropriate is void, and courts apply this during and at the end of a trial period as well, with slightly wider latitude. Foreign groups accustomed to at-will employment should plan on managed exits with documentation and, often, a negotiated separation.

Post-employment non-competes are enforced only where reasonable: courts weigh the employer's interest, the employee's position, duration (one year is common), scope and whether compensation is paid. Confidentiality and non-solicitation clauses are more reliable. Employee options are stock acquisition rights issued under the Companies Act with a shareholder resolution; tax-qualified options defer tax if statutory conditions on price, exercise period and holding are met.

Trade marks at the JPO

Japan is first to file and examines quickly; approximately six to twelve months from filing to registration is typical without an office action, and accelerated examination is available for marks already in use. Opposition is post-grant: anyone may oppose within two months of publication of the registration in the Trademark Gazette. Registration lasts ten years from registration, renewable, and a mark unused for three years may be cancelled. Foreign applicants without a Japanese office must act through a Japanese representative, in practice a registered patent attorney (benrishi). Because similarity is judged on sound as well as appearance, a katakana transliteration is often filed alongside the Latin-script mark. Japan is a Madrid Protocol member.

Practical checklist

• Use a bilingual contract with Japanese prevailing where the counterparty is Japanese.
• Sign electronically where possible; keep the registered seal for registry and notarial documents.
• Check the articles for the share transfer restriction before any transfer or option grant.
• Use a KK, not a GK, if employee equity is planned.
• Document performance issues; 30 days' notice alone will not support a dismissal.
• File the mark and its katakana form at the JPO before launch.

LegalMatrix products for Japan are prepared with aligned Japanese and English texts and signed off by a bengoshi; trade mark filings are made by a benrishi.