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How to start Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou )

In the case you want to start financial instruments business ( Kin yu shohin torihiki gyo =金融商品取引業 ) in Japan, you need to overcome a lot of conditions. . . In order to operate financial instruments business ( Kin yuu shouhin torihiki gyou =金融商品取引業 ), you need to register your business with authority. . . How to start Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業) . . In Japan, there are 4 type of financial instruments business. .

Type I Financial Instruments Business in Japan ( dai isshu kin yuu shouhin torihikigyou = 第一種金融商品取引業)

Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業)

Investment Management Business　（ Toushi un you gyou =投資運用業 ）

Investment Advising and Agency　（ 投資助言・代理業 ）

. In this page, I will explain how to start Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業) . . In the case, you hope to sell or solicit or intermediate,  securities equivalent ( みなし有価証券 ), trust beneficiary right　( 信託受益権 ), you need to register your business as Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業). .

As for sale of trust beneficiary right. . In the case, a owner of real estate trusts her real estate to trust bank. .Then, trust bank utilizes the  real estate and the bank issues trust beneficiary right. . Then, your company sells, intermediates this trust beneficiary right to investors. . In order to operate this business, you need to register your business as type 2 financial instruments business.

 . . In order to operate type 2 financial instruments business in Japan, you need to register your business with chief of finance bureau ( Zaimu kyoku = 財務局 ). .

In order to register your business as type 2 financial instruments business in Japan, the amount of stated capital amount should be more than 10 million yen. . .

In the case, you are going to operate this business by legal entity, the amount of stated capital is 10 million yen or more. .

In the case, you are going to operate this business by individual, you need to deposit this amount with authority. . If you deposit this amount, you cannot withdraw this amount during your business.

. Necessary persons in your company to start Type II Financial Instruments Business ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業) in Japan

. Your company needs to have officers and employees who have sufficient knowledge t0 operate financial instruments business properly. . The number should be at least 3 persons. . Your company needs to have sufficient division to operate financial instruments business properly. . Top managers must have sufficient skill and knowledge to operate financial instruments business properly. . Managing officers in your company need to understand content of financial instruments business law and relevant guidelines and have sufficient skill and knowledge to manage financial instruments business. . Your company needs to have enough persons in each section to operate financial instruments business properly. . Your company needs to have compliance division independent from sales division and have necessary person who has sufficient skill and experience. .

In the case, there is false description in application form and documents attached, you can not register your business. .

In the case, your business was revoked within 5 years from your new application for this business. If you violate of any law and authority revoked your registration, you can not register within 5 years from the date of revoke etc.

. In the case you conduct financial instruments business in Japan and violate of law and guideline, you will be punished according to law. . You can not solicit potential investors unfairly. . You needs to display notification board at each of your office where your customers can find easily. Your company can not become a Fiduciary Trust Company. . Because it conflict interest of investors. . In the case your company makes an advertisement to look for customers, you need to specify following items. .

Name of your company

The fact that your company is financial instruments business operator and number of registration

The important matters concerning the contents of the relevant Financial Instruments Business that may influence customers’ judgment.

. Your company needs to clarify Conditions of Transactions in Advance. . You company needs to provide documents below.

Risk disclosures Before conclusion of contract. ( Keiyaku teiketsu mae shomen = 契約締結前の書面 )

Documents at the timing of conclusion of contract. ( Keiyaku teiketsu ji shomen = 契約締結時書面 )

Document Pertaining to Receipt of Security Deposit ( When your company has received Security deposit from your customers )

. Necessary cost to register your Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業).

Registration tax : 150,000 yen.

. It is stipulated that customers can cancel contract with financial instruments business operator base on cooling – off system from the date of delivery of document at the timing of conclusion of contract. （ It differs depends on content of investment.  ） . .

Example of type 2 financial instruments business.

In the case, a person wants to make a movie. But, she does not have enough fund to make a movie. In that case, she can ask your company to look for investors. If her movie can collect enough customers, she can divide a part of profit with your company and investors.

. Taxation relating to Investment Fund Assumed that a person can get profit of 1 million yen by her business. . In the case she establishes a company and her company earn profit of 1 million yen. . In that case, rate of corporate tax is about ４０％. So, residue is 600,000 yen. ( １ million yen – 400,000 yen ＝600,000 yen ). And this company distributes this 600,000 yen to shareholders. Shareholders need to pay income tax. Rate of income tax is different from each investors. Because, when the amount of investor’s taxable income is higher, the rate of income tax is higher. ( It is from １５％ to ５０％） Assumed that income tax rate is ４０％. So, investors needs to pay income tax of 240,000 yen. ( 600,000 yen × ４０％ = 240,000 yen ). Then investor’s can keep 360,000 yen.  ( 600,000 yen － 240,000 yen ＝ 360,000 yen. ) So, even if the company gets profit of 1 million yen, investors can only keep 360,000 yen. This is called double taxation ( ni juu kazei = 二重課税 ). In the case, she makes investment fund and collect money. And she can get profit of 1 million yen by her business. The investment fund does not have legal entity. Thus, it does not need to pay corporate tax. So, this investment fund can distribute 1 million yen to investors. And investors can keep 600,000 yen ( 1 million yen – 400,000 yen ( Income tax ) = 600,000 yen ). Overall schedule to make application for Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業) You need to submit written summary ( Gaiyou sho = 概要書 ). In this file, you need to specify following items.

Outline of applicant’s company : history of company, the amount of stated capital, the number of officer and employees, information of shareholders.

Documents that explain your business : Specific purpose to register your business. Specific type of your business. Current status of your business. Business plan.

Content of financial instruments : Type of your customers.

Organization of your company : Role and the number of your employee and officer

Matters relating to financial ＡＤＲ to solve the claim

If your company is operating other business, the content of your business.

In the case your company is going to operate sales of real estate beneficiary right, the matters that can indicate bank ground of officers and employees.

After you submit this paper, you will receive an interview with officer of financial bureau. . Then, you submit necessary papers to register your Type II Financial Instruments Business. . Necessary documents are as below. ( In the case your company operates sales of real estate trust beneficiary right )

Application form for registration.

written oath　（誓約書）

Documents that clarify the operation of business ( 業務方法書 )

Documents that clarify managing persons and organization. ( 業務に係る人的構成及び組織等の業務執行体制を記載した書面 )

Resume of Officer and main employees ( 役員及び重要な使用人の履歴書 )

Written oath that clarify officer and employee do not fall under disqualification. ( 役員及び重要な使用人の欠格事由に該当しない旨の誓約書 )

Residence certificate of officer and main employee ( 役員及び重要な使用人の住民票抄本 )

identification card of officer and main employee ( 役員及び重要な使用人の身分証明書 )

Certificate that officer and main employee is not a person without capacity ( 役員及び重要な使用人の登記されていないことの証明書 )

Documents that clarify situation of specified persons concerned. ( 特定関係者の状況を記載した書面 )

Documents that indicate your company does not fall under articles 13 of cabinet order ( 内閣府令第１３条第３号に掲げる基準に該当しないことを証する書面 )

Scanned copy of qualification certificate of real estate broker. ( 宅地建物取引主任者証等資格証の写し )

Certificate of seal impression ( 印鑑証明書 )

Scanned copy of certificate that indicate you have taken necessary seminar. ( 講習受講証明書等の写し )

Articles of incorporation. ( 現行定款 )

Certified copy of commercial register （ 履歴事項全部証明書 ）

Latest balanced sheet and profit and loss statement ( 最終の貸借対照表及び損益計算書 )

Once you submitted necessary documents to finance bureau, it will take at least 2 month to complete the registration. . In order to submit this registration, you need to make several documents. . With my support, you can acquire necessary information in English language. If your company is registered, you can go to finance bureau office and receive certificate. . Then, you can start your Type II Financial Instruments Business in Japan ( dai nishu kin yuu shouhin torihikigyou = 第二種金融商品取引業).

Public offering ( koubo = 公募 ) and Private placement ( shibo = 私募)

Private placement ( shibo = 私募) will be performed by a company who issues securities ( yukashoken). In the case the security is share stock （=株券）of joint stock company, the company conducts private placement. In the case the security is “equity interest = shusshi mochibun”, Operating partner ( 業務執行組合員 ) conducts private placement. Generally Private placement is not included in financial business. If it was included in financial business, all companies who issue share stock need to register as financial instruments business operator. On the other hand, in the case operating partner who issues equity share (shusshi mochibun) is included in financial instruments business operator. What is Private placement Private placement is soliciting activity that is not included in public offering. In the case a company who issues new share try to collect subscriber and ask him/her to purchase the share, the activity of the company is called soliciting activity. In the case of securities prescribed in item 1, article 2 of financial instruments act ( 第一項有価証券 ), if the number of counterparty of soliciting activity is 50 or more ( for six months ), the soliciting activity is not private placement, but it is public offering. In the case of securities prescribed in item 2, article 2 of financial instruments act ( 第二項有価証券 ), if the number of new subscribers  is 500 or more, the soliciting activity is not private placement.