Japan

Joint Stock Corporation (kabushiki kaisha)

The most common form of for-profit corporate organization in Japan is the joint stock corporation (kabushiki kaisha, or “KK”). A KK can be established for the purpose not only of pursuing profit but also contributing to the public interest (see “I. 3.(ii)” below). Accordingly, KKs are used very commonly and broadly and, therefore, account for about 93.3% of all companies in Japan.

Shareholders of a KK have limited liability, which means they are liable for the debts and liabilities of the company only to the extent of their investment amount. The operation of a KK is conducted by its directors.

Limited Liability Company (godo kaisha)

The second most common form of for-profit corporate organization in Japan is the limited liability company (godo kaisha,or ”GK”), which is known as the Japanese version of the LLC in the United States. Any member that has invested in a GK has only limited liability, meaning the GK’s assets are separate and distinct from those of its members, which is the same as the KK. On the other hand, the GK differs from the KK in that the operation of a GK is conducted by its members. Further, there are few mandatory provisions regarding the organizational structure and members’ rights of a GK, which means it is more flexible than a KK.

• The basic requirements for for-profit corporations (KK and GK) are as follows.

a. The most common are:

• A KK is the most common for-profit organizational form used by Enterprises seeking financing from investors or multiple owners. A KK is considered more appropriate to raise funds from a wide range of and a large number of investors, because shareholders of the KK are generally not involved in the execution of the company's operation and KKs have a high level of credibility in Japan.
• GKs may also be used to raise capital from multiple investors, but usually the number of investors tends to be small. This is because the investors become members of the GK and are directly responsible for the execution of the company's business, and thus the personal relationships among the members are considered important.

b. For Social Enterprises (“SE”), [1] as well as other types of for-profit organizational forms, the KK is commonly used.

• The KK is allowed to have any purpose so long as the purpose does not include any violation of mandatory rules or public order and morals. Thus, the main purpose of the KK can be solving social problems regardless of whether or not it relates to pursuing profits. In addition, the KK is not prohibited from receiving subsidies and donations. Additionally, as stated above, using the KK form makes it easier to raise capital (see I.2.a above), and the requirements for the incorporation of a KK are not so strict (see I.2. above).  Further, rules on distributions (e.g., whether surpluses of the KK are to be distributed to shareholders or retained within the company for future use) can be determined by a general meeting of shareholders or by the board of directors, which means the policy on the distribution of surpluses is flexible.
• For the reasons stated above, unless the SE wishes to utilize certain tax advantages as described in I.5 and II below, there is no particular disadvantage in an SE using a KK to conduct its business, and in fact, KKs are widely and broadly used by SEs.

[1] Given that KKs and GKs may both be used for social purposes, and companies tend to endeavor to make social contributions in Japan, as described in I. 2. and 3., we think a great many companies (or nearly all companies) in Japan may literally meet the definition of the term ‘Social Enterprise’ on page 2 above. Therefore, for some questions, depending on the purpose of the question, we have responded assuming that references to ‘Social Enterprise’ mean an enterprise satisfying the following six conditions, which is similar to the definition of “Social Enterprise” used in “A Report on the Aggregated Activity Size of Social Enterprises in Japan” (May 2015, Cabinet Office of Japan) and those used in the UK Cabinet Office’s “Social Enterprise: Market Trends”.

1. The enterprise should have mainly social or environmental aims;
2. The main purpose of the business should not be pursuing profit but solving social/environmental issues or making social contributions;
3. The business surpluses should principally be reinvested for the purpose of the business or community rather than being paid to shareholders and owners;
4. It should not pay more than 50 percent of its profit or surplus to its owners or shareholders;
5. Revenue generated from its business should not be less than 25 percent of its total revenue; and
6. No more than 75 percent of its total income should rely on grants and donations.

(i)     There is no explicit statutory requirement for the board or management of a KK to consider or prioritize any interest other than shareholder value when making decisions.

• However, there is an argument that the reasonable expectations of creditors should be protected in addition to shareholder value based on the discipline of the Companies Act, and that directors should not undermine the interests of creditors including in the event of insolvency. In addition, there is an argument that that the interests of employees should also be taken into account, especially in the event of a hostile takeover.
• It is noteworthy that the revised Corporate Governance Code published by the Tokyo Stock Exchange (“TSE”) under the supervision of the Financial Services Agency (“FSA”) states that the sustainable growth and the corporate value of a listed KK are brought about as a result of the contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communities, and therefore listed KKs should endeavor to appropriately cooperate with such stakeholders.

(ii)    There is no statutory obligation that restricts or prohibits the board or management from considering or prioritizing interests other than shareholder value in decision making, and as a matter of course, there are no statutory provisions permitting them to take into account such interests.

• Under Japanese law, as stated in I.2.b above, a KK can be established for the purpose of contributing to the public interest and society. With respect to KKs with such a purpose, it is understood that activities for the contribution to the public interest and society is the realization of shareholders' interest.
• Moreover, even if the purpose of a company provides only for profit activities, it tends to be understood in Japan that non-profit activities (such as charitable activities or environmental movements) conducted by a KK would increase the value of the company. It tends to be understood that a company's reputation is enhanced through activities that contribute to the social or environmental good, which helps it to achieve its main business and benefit its shareholders. Given such understanding, there are very few cases of disputes raised by shareholders regarding a company’s non-profit activities raised by shareholders, while many companies conduct social activities without any specific rules allowing them to engage in such activities.

There is no organizational form that is specifically designed for SEs in Japan.

• As stated in I.3. above, for-profit organizational forms (KK and GK) can be used for SEs. In addition to for-profit organizational forms, non-profit corporations (General Incorporated Associations, General Incorporated Foundations and NPOs) can be also used by SEs. Please see I.5. below.

SEs can be incorporated in the form of a nonprofit corporation (hi eiri houjin), including General Incorporated Associations, General Incorporated Foundations, and NPOs (defined below), if they satisfy the relevant requirements.

Under Japanese law, a non-profit corporation is defined as a corporation, the surplus of which would not be distributed to its members, although such a non-profit corporation (including an NPO) is not prevented from making a profit. Therefore, SEs can be established as non-profit corporations so long as they do not distribute their profits to their members, subject to the following requirements:

General Incorporated Association(ippan shadan houjin)

• A General Incorporated Association (ippan shadan houjin) differs significantly from a KK in that it is prohibited from distributing profits to its members. In addition, at least two members and two directors are required for its incorporation.
• A General Incorporated Association is the same as a KK in that it can have a purpose of pursuing profits or resolving social issues, or both, and it would not need any special permission or authorization for incorporation and would not be subject to any administrative supervision after incorporation.
• The main benefits of a General Incorporated Association is that the cost to incorporate it is comparatively low compared to the cost to incorporate a KK. Also, a General Incorporated Association can enjoy certain tax benefits if certain conditions are met as described in III.1.(i) below.
• It takes about two to three weeks to incorporate a General Incorporated Association, which is almost the same as a KK.

General Incorporated Foundation (ippan zaidan houjin)

• A General Incorporated Foundation (ippan zaidan houjin) is form of entity used to incorporate a collection of assets contributed by its founders totaling JPY3, 000,000 or more. Unlike a KK, it is prohibited from distributing profits to its members. At least one member, three directors, one auditor, and at least three councilors would be necessary for the creation of a General Incorporated Foundation.  A General Incorporated Foundation may pursue profits or solving social issues, or both, but generally places an emphasis on using its assets for a certain objective. Similar to the General Incorporated Association and the KK, it does not need any permission or authorization for its incorporation and is not subject to any administrative supervision after incorporation.
• A General Incorporated Foundation can enjoy certain tax benefits if certain conditions are met as described in III.1 (i) below. 
• It takes about two to three weeks to set up a General Incorporated Foundation, which is almost the same as a KK.  

Specified Nonprofit Organization (tokutei hi-eiri katsudou houjin) (commonly called as “NPO”)

A Specified Nonprofit Organizations (tokutei hi-eiri katsudou houjin, “NPO”) differs significantly from a KK in that the purpose of the organization must be one or more specified non-profit activities (“Specified Nonprofit Activities”) listed below. An NPO may engage in a for-profit business (“Profit-Making Business”) other than the Specified Nonprofit Activities to the extent that such Profit Making Business is related to and does not interfere with the Specified Nonprofit Activities. The profit generated from such Profit-Making Business must not be distributed to its members. An NPO requires at least ten members, three directors and one auditor. To be incorporated as an NPO, it must submit an application, together with the required supporting documentation, to the competent authority and must obtain a certification of its establishment as an NPO. After that, an NPO must annually submit an activity report, financial statements, an inventory of its assets, and a list of its officers and members to the competent authority, and such information will be made available to the public (see IV.3. below).

Since NPOs shall submit statutory documents to the competent authority, NPOs have credibility and sometimes qualify for subsidies from national or municipal government (see II.4 below). In addition, an NPO can enjoy certain tax benefits if certain conditions are met as described in III.1.(ii) and 2.(ii) below.

The process to incorporate an NPO takes three months or more after submitting the application in many cases. Further, the process to receive accreditation that would allow donations to qualify for certain tax deductions can take up to two to three years (as discussed further in III.2.(ii)below).

• Specified Nonprofit Activities

1. Promotion of health, medical treatment, or welfare
2. Promotion of social education
3. Promotion of community development
4. Promotion of sightseeing
5. Promotion of rural areas or hilly and mountainous areas
6. Promotion of science, culture, the arts, or sports
7. Conservation of the environment
8. Disaster relief
9. Promotion of community safety
10. Protection of human rights or promotion of peace
11. International cooperation
12. Promotion of a society with equal gender participation
13. Sound nurturing of youth
14. Development of information technology
15. Promotion of science and technology
16. Promotion of economic activities
17. Development of vocational expertise or expansion of employment opportunities
18. Protection of consumers
19. Administration of organizations that engage in the above activities or provision of liaison, advice, or assistance in connection with the above activities
20. Activities specified by the ordinance of a prefecture or a designated city as being equivalent to the above activities

Other

In addition to the above, there are two other types of non-profit corporations: the Public Interest Incorporated Association and the Public Interest Incorporated Foundation (hereinafter collectively referred to as "Public Interest Corporations"). The main benefit of Public Interest Corporations is that contributions made to them qualify for certain tax deductions, which is supposed to facilitate the fund-raising activities.

However, it seems it is difficult for SEs to satisfy the requirement for the Public Interest Corporations, because Public Interest Corporations are legally prohibited from earning income. Assuming that an SE is an organization that is not completely relying on donations or contributions but conducts a profit-making business to earn necessary funds as described in footnote 1, SEs may generate profit or surplus in excess of the cost of public interest business and cannot be formed as a Public Interest Corporation. Further, in reality, the authorization process of the Public Interest Corporation is very lengthy and burdensome. It may take months to years to prepare the application and supporting documents before filing an application, involving pre-consultation with the competent authority. Given such difficulties, we do not think that the Public Interest Corporation would be a viable option for an SE. 

• The basic requirements for non-profit corporations are as follows:

a. SEs in the form of a nonprofit corporation will not be treated differently from non-profit corporations that are not SEs.

b. SEs in the form of a nonprofit corporation will not have any material benefits that do not apply to non-profit corporations that are not SEs.

c. No.

d.  Some SEs have used the NPO form. The number of SEs in form of NPO is increasing.

• The General Incorporated Association and the General Incorporated Foundation are broadly recognized. However, since KKs are familiar and credible and have no particular downside, KKs tend to be used unless they are formed as a Non-profit Type Corporation to particularly seek tax benefits (see III.1 (i) below).
• According to private statistics, in 2015 there were about 13,000 SEs in the form of NPOs and about 2,600 SEs in the form of the General Incorporated Associations and the General Incorporated Foundations, while there were about 185,000 SEs in the form of for-profit corporate organizations including KKs.

A GK (see I.2. above) can be considered a worker-owned Enterprise because its members conduct the GK’s operations directly.

As for other legal forms under the Companies Act, there are also the general partnership company (gomei kaisha) and the limited partnership company (goshi kaisha), which are similar to the GK in that its members conduct the operations of the company.  However, since some or all of the members of these companies have unlimited liability for the company’s obligations or debt, these forms are rarely used.

Also, there is an organization called Kyodo Kumiai, and the term ‘cooperative’ is often used as an English translation for Kyodo Kumiai. However, Kyodo Kumiais (translated as cooperatives) are usually incorporated by law for the purpose of developing specific industries, and the relationship between each member and the cooperative is rigidly stipulated under the law. Therefore, Kyodo Kumiais (cooperatives) cannot be used as an SE.

On the other hand, a general partnership under the Civil Code of Japan can be considered a worker-owned Enterprise. It can be established not necessarily for commercial purposes but also for public interest purposes. However, partnerships do not have a separate legal existence, and all of the partners share the legal and financial liabilities equally. Each partner is personally responsible for the debts the partnership takes on, and the tax responsibility passes through to the partners as well. Because of this, a general partnership may not be appropriate for an SE. If you would like to consider using a partnership as an option, you should consult with legal, tax and accounting experts.

Unlike other organizational forms, it should be noted that NPOs must submit an activity report, financial statements, an inventory of assets, a list of officers, and a list of members to the competent authority once a year, although this is not a unique obligation of an SE but a general rule for all NPOs. As a general rule, the competent authority of the NPO is the prefectural governor or the mayor of the government ordinance-designated city where the head office of the NPO is located.

Case law and precedence for SEs have not developed much in Japan.

None

None

None, but please note II.1. below.

 a. & b.:  There is no law or regulation that requires an investor (including asset managers and investment companies) to look at ESG issues when they make investment decisions. Also, there is no law or regulation that prohibits an investor from taking into account ESG issues. There is little argument in Japan that it may be if an investor prioritizes ESG issues over profit pursuits.

Subject to the above, the movement to look at ESG issues when making investment decisions has been accelerating recently.  As an example, institutional investors are strongly encouraged to make an investment in consideration of ESG issues by the Principles for Responsible Institutional Investors (commonly known as Japan’s Stewardship Code) updated in 2020 by the working group under the FSA and the TSE, although it is not legally binding.

c. According to the Bank of Japan's report titled "Trends in Japan's Institutional Investors Regarding ESG Investment" (published in July 2020), many investors seem to feel that it is difficult to see (i) the relationship between ESG factors and monetary returns and (ii) the possibility of future risks associated with ESG investments that might be affected by various uncertainties (e.g., politics, science and technology, climate change, etc.). As a result, they believe ESG investments are being made as a kind of volunteer activity or only for reputational reasons, which are not directly related to the main business.  There are still few investors who actively try to engage in ESG investments.

Although there is no doubt that the awareness of Japanese investors regarding ESG issues has been increasing, there is still a tendency to place more emphasis on monetary returns, and as a result, ESG issues are seen as only ancillary factors that investors take into account when they consider monetary returns.  It can be said that the ESG investment market is currently immature but may develop in the future.

SEs can receive grants, donations and traditional investments regardless of the enterprise form. The type of funding typically may vary depending on the enterprise form that the SE chooses. For example, SEs formed as a non-profit corporation tend to receive more grants and donations, while SEs formed as a for-profit corporation tend to receive more traditional investments.

In Japan, there is no legal system exactly equivalent to charitable investments in the U.S.

For-profit impact investments have been increasing in Japan and are becoming more familiar with investors. According to a report published by the National and Advisory Board (Japan) of the Global Steering Group for Impact Investment (NAB-Japan of the GSG),  the outstanding balance of the impact investment has reached JPY448 billion in 2019. From June 2020, the FSA and NAB-Japan of the GSG jointly and regularly hold a study meeting on impact investing to enhance impact investments in Japan.

Japan Finance Corporation (a public corporation wholly owned by the Japanese government) (the “JFC”) provides funds in the form of direct loans to SEs that are (i) an NPO or (ii) other type of enterprise engaging in the nursing care business or any other business dealing with social issues. The maximum amount of such loan is JPY 48,000,000 in the case of an unsecured loan, and JPY 72,000,000 in the case of a secured loan.  The JFC offers several schemes depending on business purpose, the information of which is available in English at  https://www.jfc.go.jp/n/english/sme/loans.html

In addition, many programs or schemes to provide subsidies, grants or loans are offered to NPOs from various government ministries or municipal governments. In order to obtain such governmental funding, it is necessary for an NPO to satisfy requirements designated under each funding programs. For your information, the government ministries include the Ministry of Education, Culture, Sports, Science and Technology, the Ministry of Health, Labor and Welfare, the Ministry of Agriculture, Forestry and Fisheries, the Ministry of Economy, Trade and Industry, the Ministry of Land, Infrastructure, Transport and Tourism, and the Ministry of the Environment. An SE can research whether there is any suitable government funding program or scheme by using a search tool on the Cabinet Office website at

https://www.npo-homepage.go.jp/policy-portal/  (only in Japanese).

Yes. Euglena Co.,Ltd. is an SE listed on the TSE. It became public in 2012.

There is no law or regulation that requires publicly traded companies to disclose ESG factors in annual reports of public filings.

However, it is stated in the Corporate Governance Code updated in 2018 by the TSE and the FSA that a listed company should specifically describe useful information as much as possible in disclosure documents, although there are many cases where the descriptions regarding ESG factors relating to social or environmental issues therein is not detailed enough.  In response to this Corporate Governance Code, the TSE published in March 2020 the "ESG Information Disclosure Practice Handbook" which explains the purpose of disclosing ESG-related factors by showing examples of disclosures. Following these movements, Japanese companies seem to have gradually proceeded to disclose ESG-related factors so that the statements would become more specific and concrete.

There have been several issuances of impact bonds since 2017, but on the whole, impact bonds are not very prevalent in Japan.

No.

In Japan, like some other countries, crowdfunding is recognized in the following four categories from the perspective of the regulatory framework.

1. Donation-based crowdfunding: money is gifted to SEs with no right or expectation of financial or other returns.
2.  Reward-based crowdfunding: money is gifted to SEs with a view to a non-financial return such as a product or service.
3. Loan-based crowdfunding: money is lent to SEs with a view to a financial return in the form of interest payments and a repayment of capital over time.
4.  Investment-based crowdfunding: money is invested in unlisted shares or other equity issued by SEs.

Generally speaking, all categories of crowdfunding are legal, allowing small businesses and SEs to solicit investment from the general public, subject to the below.

Small businesses and SEs can receive money from the public by using donation-based crowdfunding and reward-based crowdfunding without any restrictions under financial regulations. They can use the crowdfunding operator for the donation-based or reward-based crowdfunding in order to raise funds more effectively.

On the other hand, loan-based crowdfunding and investment-based crowdfunding is subject to the existing financial regulatory framework. More specifically, requirements and obligations under the Money Lending Business Act (Act No. 32 of 1983) and the Financial Instruments and Exchange Act (Act No. 25 of 1948) would be imposed on such crowdfunding. Since it is difficult for small businesses or an SE itself to meet such requirements, loan-based crowdfunding or investment-based crowdfunding should be made through a platform having a license or registration for those categories of crowdfunding.  In the case of investment-based crowdfunding, a platform operator is obliged to examine the business plan and financial status of the issuing SE before the crowdfunding, and even after issuance, it is required to regularly report to investors on the status of the SE’s business. Therefore, although the SE is not the subject of the financial regulations, it needs to cooperate with the platform operator so that it can comply with such financial regulations. Similarly, in the case of loan-based crowdfunding, an SE needs to cooperate with a credit investigation conducted by the platform operator.

There are tax exemptions generally available for General Incorporated Associations and General Incorporated Foundations (collectively referred to as “General Incorporations”) and NPOs described as below. Other than those tax exemptions, there are no tax exemptions that are uniquely available for SEs regardless of whether it is formed as a KK, NPO or another organizational form.

(i) General Incorporations

Not all General Incorporations enjoy tax privileges, but if the General Incorporation satisfies the requirement for ‘Non-profit Type Corporation’ (Hi-eiri gata Hojin) defined under the Corporate Tax Act (Act No. 34 of 1965, as amended), it can receive the tax exemptions.  ‘Non-profit Type Corporation’ is not taxed on its income from non-profit activities. Income from Profit-Making Business (defined under the Corporate Tax Act) will be taxed.

Here, the ‘Non-profit Type Corporation’ means (x) a corporation that is completely and thoroughly non-profit, or (y) a corporation that aims to obtain a benefit common to its members. In order to be eligible as (x) a corporation that is completely and thoroughly non-profit, the articles of incorporation are required to stipulate that surplus will not be distributed to owners or shareholders and that the residual assets will belong to the national or municipal government or a certain public interest organization or foundation at the time of dissolution. In order to be eligible as (y) a corporation that aims to obtain a benefit common to its members, a corporation is required to conduct its business by using membership fees received from its members and to carry out a non-profit business, but rather, activities for the benefit common to its members, and the articles of incorporation are required to stipulate that any surplus and residual assets will not be distributed to a specific person at the time of dissolution.

Whether or not an SE can enjoy this tax exemption depends on whether the SE is qualified as a Non-Profit Type Corporation under the Corporate Tax Act provided that the SE is incorporated as a General Incorporation.

(ii) NPO

An NPO is not taxed on its income from nonprofit activities. Income from Profit-Making Business will be taxed (see I.5. above).

(i) General Incorporations

Donations made to General Incorporations by individuals are not deductible. If the donor is a corporation, contributions made to the General Incorporation are deductible up to a certain limit.

(ii) NPO

An NPO may apply to become a nintei NPO houjin (“Accredited NPO”), which would allow contributions made to the Accredited NPO to qualify for certain tax deductibility, which is supposed to facilitate the fund-raising activities by the NPO. To be designated as an Accredited NPO, an NPO must satisfy certain requirements. For example, the NPO needs to fulfill the Public Support Test (“PST”), which is the criteria for assessing whether the NPO is broadly supported by citizens and consisting of three criteria: “relative value criterion,” “absolute value criterion,” and “ordinance individual designation criterion”.

An NPO which intends to obtain accreditation must submit an application together with the required supporting documentation to the competent authority.  As a practical matter, preparation of the application for this designation is very difficult and it generally takes two or three years from the date of incorporation for an NPO to be ready to apply for accreditation because the NPO must prepare documents regarding the performance for a two-year period before applying for accreditation.

•  Non-Accredited NPO: Contributions made to a non-Accredited NPO by individuals are not deductible.  If the donor is a corporation, contributions made to a non-Accredited NPO are deductible up to a certain limit.
• Accredited NPO: Contributions made to Accredited NPO by individuals are deductible up to a certain limit.  Also, contributions made to Accredited NPO by corporations are further deductible in addition to the deduction available for contributions to non-Accredited NPO.  Property inherited or acquired as a testamentary gift and donated to an Accredited NPO is excluded from the amount subject to inheritance tax.

No.

No.

There is a general Regulatory Sandbox system under the supervision of the Cabinet Office of Japan, although it is not a system uniquely available to SEs.

The Regulatory Sandbox system of Japan allows any enterprise to innovate its business model that is difficult to be implemented due to the existing restrictions or other regulations, which aims to develop technology and business and to review the existing regulations. Any enterprise (whether or not an SE) in any industry field can apply to use the regulatory sandbox system.

The Small and Medium Enterprise Agency which is an external bureau of the Ministry of Economy, Trade and Industry actively promotes the potential of small enterprises and supports the start-up of small businesses. For example, it advises on startup preparation and provides consultation on business plans, supports collaboration among small enterprises, assists business innovation in financing, handling taxes and cultivating markets, and provides financial support in the event of natural disaster or pandemic outbreak.

You can see more detail at https://www.chusho.meti.go.jp/sme_english/outline/04/01_06.html (in English)

As stated in I.7. above, NPOs shall submit an activity report, financial statements, inventory of assets, a list of officers, and a list of members to the competent authority once a year. Further, an NPO is required to keep these documents at each office, and if requested by any member or other stakeholder, an NPO must allow them to inspect those documents.

No.

No.

Time and fees to form an Enterprise depend on the type of incorporated entity. 

• In the case of a KK, it would take 2 to 3 weeks and the statutory filing fee would be around JPY 242,000. If you use a judicial scrivener or a lawyer for such filing, you have to add their fees as well.  Please note that the professional service fees of the judicial scrivener or the lawyer would vary on a case-by-case basis. (The same applies to the following entities.)
• In the case of a General Incorporation, it would take 2 to 3 weeks and statutory fee would be around JPY 112,000.
• In the case of an NPO, it would take three months or more as certification would need to be obtained from the relevant authority. No statutory fee would be charged for filing of an NPO.

Basically none, but only with respect to NPOs, it may apply for accreditation which allow contributions made to the accredited NPO to qualify for certain tax beneficiary.  As to the details please see III. 2. above.

Apart from this, a wide variety of certifications of product, safety and environmental qualification are available for SEs in the same way as other business entities, depending on the industry or its business.

Theoretically speaking, startups and other entrepreneurial Enterprises can easily be formed in Japan. However, its risk-averse culture seems to be preventing such Enterprises from flourishing, and so-called Angel venture capitalists are still limited.  Also, the Japanese public has a tendency to prefer fixed-income investments to equity investments.

Please refer to our answer to Question 3 above. SEs can form relatively easily as a for-profit Enterprise, but if they want to form as an NPO to enjoy tax benefits, they have to go through a lengthy and exhausting application process. On balance, to buy time, we think an SE taking the form of the KK can easily form and flourish in Japan.

No, not at all.

There may be a traditional argument that the legal form of a joint stock corporation cannot be used by an SE, as the management of the corporation has to put the priority on the maximization of the profits of the shareholders rather than the specific social or environmental objectives.  However, especially in Japan, the idea that the management of the joint stock corporation (KK) should pay more attention to the interests of the various stakeholders, such as employees, consumers, creditors and the general public and not exclusively those of the shareholders (i.e. ESG or SDGs philosophy) has become much more popular and be widely supported.  It can be considered that shareholders should have such understanding and agree with its purposes especially when investing in the SE.  So, the above traditional arguments are not seen today in Japan, and there are no laws that are obstructive to the formation from this perspective, no matter what formation the SE is going to use.

No, not to our knowledge.

Although we are not sure whether the following points count as legal or not, if discussions on these points progress and a common understanding is reached within society, it would contribute to the further development and flourishing of SEs.  Please note that such discussions should be made based on the Japanese Companies Act and the duties of its management body may be different from U.S. standards.

1. Definition of Social Enterprise;
2. Standards to assess the performance of a Social Enterprise;
3. Grant of special tax incentives to the investments and/or donations to a Social Enterprise;
4. Relaxation of securities regulations on funding of a Social Enterprise; and
5. Promotion of the concept of ESG as well as SDG to the consumers and asset owners (i.e. institutional investors) of Japan.

We think that enhancement of emission regulations and regulations on water pollution as well as encouragement of emission trading will be most beneficial to promote the social and environmental responsibility of Enterprise generally.

No.