Japan abolishes the requirement that a Japanese company must have at least one representative resident in Japan.

Japan’s Ministry of Justice recently announced that, as of March 16, it would no longer require most Japanese companies to have at least one representative director with a registered address in Japan. This “resident representative” requirement was often difficult for many foreign companies to satisfy when first establishing a subsidiary in Japan, and many foreign companies turned to service companies to provide a contractual resident representative and incurred additional fees in the process.

This development applies to a conventional corporation (a kabushiki kaisha) in addition to certain other companies under the Companies Act, for example, a godo kaisha (similar to a limited liability company under US law and a popular choice for Japanese subsidiaries of foreign companies). This change applies not only to new companies being formed but also to preexisting companies, however, foreign companies that do business in Japan through a branch must continue to appoint at least one representative domiciled in Japan.

Although the Ministry of Justice’s decision allows Japanese companies to be composed entirely of nonresident representative directors, companies should carefully consider the business and administrative implications that this may have. For example, some banks may still refuse to open corporate bank accounts for such companies or require additional time to open accounts. Companies should weigh such effects before appointing or replacing their representative directors domiciled in Japan.