Business Purpose: What must be written in there?

Matters to be written in the business purpose

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The business purpose is one of the items that must be written in the Articles of Incorporation, since it is stipulated under the Civil Law of Japan that the company “shall have rights and assume obligations within the scope of the purposes specified in the articles of incorporation. (Article 43)” In other words, any act that was performed completely outside the purposes specified in the articles of incorporation, would not be attributed to the company.  On the contrary, if the act is even slightly related to the corporate purposes, then the company would be responsible for the consequence.

For Example:
A company with a business purpose of “advertising business” begins to operate a photo studio. Although, those seem to have no relevance, when the photography techniques cultivated in the photo studio are utilized for advertising business, then relevance can be recognized.

As you can see, it is very difficult to clearly define the scope of the business purpose, thus the Legal Affairs Bureau does not strictly examine the content of the business purpose itself at the establishment stage. And, I’ve never heard of companies not being able to be established because of their business purpose. However there are some important factors to be well considered when deciding the purposes. 

Important Factors of the Business Purposes; those are, clarity, profitability and legality.

Clarity

The content of the business purpose must be clearly stated; and the words which are used in each item of the purposes must be in the Japanese language dictionary. Therefore, some foreign words and technical terms (e.g., office automation or OA equipment) are acceptable to be used, while coined words are not allowed to be used.

Profitability

Since the Kabushiki-kaisha is considered to seek profitability as its basis, some commerciality in its contents are require .
Ex.) “Volunteer activities” is not acceptable
*It is possible to do volunteering as part of other business purposes. Still, it is not necessary to stipulate it as a business purpose.

Legality

Business purposes which are analogous to a certain special business may not be registrable.
Ex.) “Collection of debts” is the exclusive business of lawyers since it involves legal acts such as compulsory execution. Therefore, general companies (with the exception of some companies that are permitted) cannot register it as a business purpose.

Other important points

• If you are planning to apply for a business license or permission, it may require some specific contents to be register as the business purpose.
  Ex.) Travel agency business needs to include “Travel agency business and travel agency business based on the Travel Agency Law” as the purpose

• The business purpose of the parent company and subsidiary must overlap in some way. They do not have to be exactly the same; it is sufficient if the purpose is clearly related to each other.

  Note: It is available for the 100% parent company to set its purpose as “to control and manage the business activities of a company (=subsidiary) engaged in a XXX  business by owning shares of the said company”.

• Specificity: Although it can be passed the registration examination, it is not highly advisable to define a business purpose that is too abstract in order to expand the scope of the company’s business,

  Ex.) A representative director of a company, that has been operating an online cosmetic shopping website with a broadly defined business purpose of “sales transactions”, is trying to purchase real estate in the name of the corporation.
  If the business purpose of the company is simply to conduct “sales transactions,” it will be difficult to determine whether or not the act of this representative director is “outside the scope of the business purpose (= act that is not attribute to the company)”.

  Conversely, if the business purpose is defined too specifically, the purpose will be subdivided and the list of business purposes will become longer and longer, which is also not recommended.

  After all, the purpose of the business must be set neither too narrow nor too broad.

  Too broad: Consulting services
  Rightly specified: Consulting services related to study abroad
  Too narrow: Consulting business related to overseas study in the United States

• Almost all companies in Japan state the last items of the purposes as “all business related to or incidental to each of the above items“.

Conclusion

It is frequently asked, “about how many of purposes should it be registered?” For this inquiry, I always answer “approximately 5-10 items which summarize the business scopes for the coming 2-3 years“.
It is important to remember that since the business purposes are must registered matters, each time the purpose is added or reduced, the judicial scrivener fees and registration tax will be charged. Thus, it is advisable to include the purposes for the next two to three years at the time of the establishment.

MK@ 03/19/2022