The Shadan Hojin

November 5th, 2012By Category: Uncategorized

Most of our blogs to date have focused on either the kabushiki kaisha or the godo kaisha as the
types of corporate entities which one can incorporate. In 2006, Japan enacted a series of new laws
regarding non-profit entities which came into effect December 2008. One of the new entity types
resulting is what is known as an ippan shadan hojin, or a “General Incorporated Association” (we
will refer to it as an “SH” in this article).

If you operate a small club or group of people with a common goal whose purpose is not to make a
profit but still wish to acquire corporate status, the SH may be an alternative for you. By becoming
an incorporated association, you will be able to open bank accounts, rent property and enter into
contracts under a corporate name. Being a legally recognized entity, the SH can be used to register domain names.

Structure and Incorporation

The SH can be incorporated with no registered capital and its business activities are not restricted to
being for “public interest”. An SH can be setup with as few as two sha-in (“Members”), as opposed
to an NPO which requires a minimum of 10 Members. The word sha-in in this case refers to a
person (or entity) who supports the activities of the organization and may actively participate in the
governance of the organization through general meeting voting rights. The SH is also characterized
by being relatively easy to incorporate. The new laws provide that an SH is governed under rules
similar to that of regular corporations with riij (“Governors”) and kanji (“Auditors”) as its officers.

“Pure Non-Profit” SH

The revenues earned by an SH are in principle taxed the same as a regular corporation. However,
an SH can also be set up as a “pure non-profit” type SH by providing certain regulations in its
Articles of Association including those that specifically state that profits will not be distributed to
its Members and that the assets of the SH will be given to the government or other non-profits with
a similar purpose in the event of its dissolution. As a “pure non-profit” type SH, revenues earned
from its not for profit, business activities are not subject to corporate tax. The “pure non-profit” type
SH is in fact taxed similar to a regular NPO entity, and given its relative ease in incorporation as
compared to the latter, is an attractive option to those considering operating an non-profit type entity.

Public Interest Incorporated Association

In addition, an SH which satisfies 18 approval standards can become a koeki shadan hojin, or
a “Public Interest Incorporated Association” after being approved by a special government body
which administers NPOs under the new regime. Organizations that receive this “public interest”
status can receive additional preferential tax treatments, including tax deduction benefits to those
who make cash or legacy donations to the entity. In exchange for these tax benefits, the Public
Interest SH must ensure that over 50% of the organization’s operation budget is spent on “public
interest” activities. Public interest activities are those types of activities defined in the new non-
profit entity laws and are generally characterized as providing educational, artistic, goodwill etc
benefits to “a large number of unspecified people”.

The corporate legal consultants at Shinonome Group have extensive experience with incorporated
associations and other corporate entities. They may be contacted for additional information and
advice on business setup.

Author of this article

Shinonome Group

Shinonome Group provides counsel on a range of matters including business and commercial, immigration and visa, real estate, and estate planning and administration issues in Japan. Our goal is to achieve workable solutions quickly, accurately and professionally. We possess both the business knowledge and the legal expertise required to successfully handle a wide spectrum of issues.

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