Category: Legal News

START-UPS IN JAPAN

Keeping up its reputation as the land of true opportunities, Japan has always attracted potential entrepreneurs looking to expand their horizons in the field of technology and business. Japan has managed to turn themselves into a huge industrial and commercial hub. Japan is the centre of many companies like Honda, Sony, and Panasonic to jump-start their business and over the decades, turn into global giants.

The Japanese Government has continuously endeavored to relax business regulations in order to encourage citizens as well as non-residents to start-up their businesses in Japan. Foreign residents wanting to set-up a business in Japan are required to hold a manager visa, which serves as a legal permit for operating and starting commercial activities in the country.

Before 2013, foreign entrepreneurs were required to comply with various stringent norms, such as either employing minimum two full-time employees, or investing a minimum capital of ¥5 million in their business, and also, they had to secure office space in Japan. But, now, Tokyo Metropolitan Government (TMG) has started providing a six-month preliminary business visa, enabling foreign entrepreneurs to visit, explore and set up a base for starting up their businesses in Japan. This short-term permit provides sufficient time to complete the required paper work, get settled and grow businesses without any undue pressure while participants are in Japan. This visa is renewed at the end of the six months, provided the project is progressing smoothly and that all conditions have been successfully met.

Japanese government has established Special Business Zones in its metropolitan cities such as Tokyo, Osaka, and Nagoya. There are numerous benefits of starting up a business in Japan. Japan offers an exciting yet stable business market which is open to trade and foreign investment. Moreover, Japanese market is globally very competitive, especially in the fields of environment, healthcare, IT and automotives. Furthermore, Japan has a highly educated and affluent population which makes them discerning consumers. Loyalty and cooperation are valued by Japanese people over aggressiveness and competitiveness. Being a predominantly collective society, each individual often feels a strong sense of belonging and responsibility towards their work place.

Foreign companies wishing to set up a business in Japan have three choices regarding the modes of business operation; they can either open a representative office, a branch office or a subsidiary office.
Representative office doesn’t require any registration and is established for carrying out supplemental work only. A representative office, however, cannot ordinarily open bank accounts or lease real estate in its own name, so agreements for such purposes must instead be signed by the head office of the foreign company or the representative at the representative office in an individual capacity.

The branch office can begin its business operations as soon as an office location is secured. A branch office does not have its own legal corporate status. The foreign company is ultimately responsible for all debts and credits generated by the activities of its Japanese branch office. A Japanese branch office, however, may open bank accounts and lease real estate in its own name.

A foreign company establishing a subsidiary company in Japan has to establish such subsidiary company either as a joint-stock corporation, a limited liability company, or a similar entity stipulated by Japan’s Companies Act. But, owing to its unlimited liability, it is not a common preference of foreign entrepreneurs.

According to Japanese Market, foreign entrepreneurs are usually advised to set up a limited liability company, because it ensures equity participation.

Opening a local bank account is also a pre-requisite, for depositing the funds in Japan. Earlier, it used to be necessary to have a Japanese resident as a representative director of the company, but now, after the amendments made by the government, it is no longer required to have a representative director. Thus, it has become easier for the non-residents to start-up their business in Japan.

The Japanese Government has also been actively promoting foreign investment since the past few decades. Various treaties and deals have been signed by the Japanese government with other countries in order to provide subsidies and favorable work conditions to foreign start-ups. The government has also established “Tokyo One-Stop Business Establishment Centre” to provide one-stop services to start ups for complying with necessary procedures for starting up businesses in Tokyo.

To sum up, Japan has come a long way in recent years in order to ease the business of setting-up and to promote entrepreneurship.

Investing in Start-ups- Things to Look Out For

“I see startups, technology and innovation as exciting and effective instruments for India’s transformation.” ~ Shri Narendra Modi
Since the announcement of “Start-up India” scheme by Prime Minister Narendra Modi in his 2015 Independence Day Speech, there has been a lot of buzz among the small entrepreneurs, investors, VC’s, and management groups leading to a new era of startup evolution in India. To begin with, India is the world’s youngest start-up nation with 72% young founders who are less than 35 years old. The “Start-up India” campaign further shows the Indian government’s intent in understanding the value of startups and boosting innovation culture in a youthful and emerging economy. This thrust in the Indian startup systems holds great promise for every sector, especially for the crucial areas of education, healthcare, employment, and agriculture.
The action plan for start-up India promises an abundance of benefits to innovation driven ventures including funding support through corpus of INR 10,000 crore; credit guarantee fund for Startups by the govt.; tax exemption on capital gains of Start-Ups; complete tax exemption to Startups for their first 3 years; and further tax exemption on investments above fair market value. Besides the financial support “Start-up India” provides for the development of several Incubators and other support systems needed for start-ups to flourish.
India has come a long way from the initial days of bootstrapping when the major chunk of the initial investment for businesses came from the initiator’s personal saving, and support from friends and family. But with the advent of government initiatives promising incentives for start-ups to lay the company foundation, the role of the investors would also be extremely valuable. The actual impetus that propels a young enterprise forward is the infusion of necessary funds into its system either by the Angel Investors, venture capital funding, ultimately leading to generation of funds by private equity means and finally launching IPOs. Keeping the above in mind, the total funding in Indian startups was estimated to be close to $5 billion by the end of 2015.
Investing in startups is quite uncertain and can prove to be a risky affair, especially when the idea doesn’t take off as planned leaving the investor stranded and penniless. Having said that, there is absolutely no doubt that investing in a start-up can also be very incentivizing as well. The reason why an investor needs to be extra vigilant while pouring in his bit into a start-up is because such companies are saplings playing with ideas looking at a prospective product, which in most cases don’t have a commercially tested product or solid customer foundation. Therefore, the start-up investor must critically evaluate the business plan and the model for generating profits and growth in the future.
  • Broadly the essential things that must be pondered upon while looking to invest in start-ups should be: evaluation of suitable risk
  • likelihood of profitability
  • equity stake available in exchange for capital
  • market evaluation especially checking the viability of competitors
  • legal and regulatory compliances
Before investing in a start-up one must ascertain the domain of startups that they might be interested in and then zero down on the company that deserves the investor’s money.
Three aspects of a Start-Up must resound the philosophy of a start-up investor:
  • Idea;
  • Intellectual potential; and
  • Individuals contributing to the Start-up.
After deciding on what company to invest into, one must ascertain the timing and type of entry into the system. Depending on the equity share and willingness to be a part of the decision-making, types of participation can be grouped as angel investment, venture capitalist or crowd-funding. It is also important to evaluate the potential return on investment (ROI) and time frame needed to maximize the profits.
Taken the other way around, when a start-up holds an original product/service but does not adequately safeguard their respective IP; then markets such a potent product without developing a strong IPR strategy to monitor and back up sales, not only does it expose the product to plagiarism but also loses out on precious market share and boosted sales due to loss of originality.
Besides the above listed “diving in” investment considerations, an investor should also chalk out an exit plan. A healthy exit strategy is very important for an investor since it is imperative for them to known the time frame when one would be able to withdraw the initial investment and its related profits.
In the end, an investor must remember that investment demands patience and one should be more oriented on the long term prospects rather than short term gains in order to maximize output. Also, as they say, “Don’t put all your eggs in one basket”, the sound investor always focuses on having a diversified investment portfolio. The more the diversification of your startup investment, the greater are the chances of hitting gold in a relatively short time-frame.
~ Happy Investing!
Article By: Vineet Sharma – Vice President (Patent Analysis)