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Making Non-Profit Organization in Japan

NPO does not distribute dividends among owners

Here, I will explain Establishing a Non Profit Organization in Japan. ( NPO Hojin = NPO法人 = 非営利組織 = Hi eiri soshiki ).

In the case, a person wants to start a kindergarten or nursery school for foreigners in Japan,

She may consider whether to establish a joint stock company ( Kabushiki kaisha ) or Non Profit Organization.

So, in this page I will explain Non Profit Organization ( Hereinafter referred to as NPO ) in Japan.

NPO does not distribute its profit among members ( It means shareholder in case of joint stock corporation.  ) even if it gets some profits.

If NPO employs some persons, it can pay salary to its employees.

And if there is still profit in NPO, such money shall be used for operation of NPO.
NPO can not pay a dividend.

Directors are necessary

NPO must appoint at least  three directors ( Riji ) and one auditor secretary ( Kanji ).
( Herein after referred to “officers” )

And NPO can not include more than one person who is a spouse or relative within the third degree of kinship of any other officer.

So, if she becomes a director of this NPO, her husband can also be a director. But, their child can not be a director.

And officer and his/her spouse and relatives within the third degree of kinship may not account for more than one-third of all officers.

So, if she and her husband become director, NPO needs to appoint four other officers who are not their relatives within three degree of kinship.

And the number of officers receiving remuneration ( Yakuin Hoshu ) from NPO can not be more than one-third of all officers.

Assumed that she and her husband and four persons are officers in her NPO.

And if she and her husband receive remuneration from NPO, other four officers cannot receive remuneration from NPO.

This remuneration does not mean “salary”. So, if she works  as teacher as well as director and if she receives only salary as a teacher, she does not include in ” officers receiving remuneration from NPO “.

Process of establishing NPO in Japan

At first, more than two persons should be incorporator ( Hokki nin ) and make articles of incorporation and other necessary documents.

And they need to appoint members “Members” corresponds to shareholder of joint stock company.

They have voting right in general meeting. Voting right of each member should be equal.

Even if she invested in her NPO, she cannot operate this NPO on her own authority.

In the case, other all members resolve that she should leave this  NPO, she can not remain in her office.

In order to be a member, they do not have to invest in NPO at the timing of incorporation.

And number of members should be more than ten ( If she and her husband are member as well as officer, she need to find at least 8 members. ).

Even minor and foreigners, non resident of Japan can be a members.  And these members approve these documents.

Then, she submit necessary documents to competent government agency.

If it accepts her submission, competent government agency makes articles of incorporation and list of members public for two months.

And after this period, competent government agency will decide whether to authorize the establishment of NPO or not within two months.

So, in order to establish NPO, it will take at least 2 month after application of establishment.
( As for these procedures, Metropolitan Tokyo Government has its jurisdiction if this NPO has its head office within Tokyo. )

Then, she needs to file registration of establishment of NPO at the location of its head office.

Conditions to establish NPO in Japan

The purpose of establishing this organization should contribute public benefit.
For example, contributing to the sound upbringing of children.

If she establishes a Non Profit Organization in Japan, she can acquire legal entity. So, she can conclude any contract and own real estate under NPO’s name.

And when people look at the term “NPO”, they may think that her legal entity aims to help some people without gaining profit. And her organization may acquire trust of other party.

And in the case of NPO, there is a possibility that her organization can reduce the amount of tax.

On the other hand, Japanese government administer NPO more strictly than other commercial organization. NPO must keep several regulations and submit several kind of documents.

NPO must make documents that announce status of its business and make it public.

NPO must pay corporate inhabitant tax generally.

And if NPO conduct profit-making enterprise, it needs to pay corporate tax ( Hojin zei ).

If her NPO operates kindergarten or nursery school and receive school fee from students, this activity is not included in profit – making enterprise.

If this NPO sells text book to its students, it is not included in profit – making enterprise.

But according to situation, for example it intermediates other company’s sales activity, there is a possibility that its activity is included in profit-making enterprise and need to pay corporate tax.

In the case, her NPO is dissolved in the future, asset of NPO is not reimbursed to her. NPO needs to donate its rest asset to Japanese government etc.

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