When Capital Increase Becomes a Practical Question#
Once a Japanese company is operating, there are several reasons the registered capital amount may need to increase:
- The company needs additional working capital and the shareholder is injecting funds as equity rather than debt
- A new investor is joining and their investment is structured as newly issued shares
- A visa application (Business Manager or investment-linked) requires demonstrating higher deployed capital
- The company is expanding into a regulated activity with a minimum capital requirement
- Banking or counterparty due diligence expectations require a larger balance sheet
In Japan, adding share capital to an existing company is called 増資 (zoshi), meaning capital increase. The process differs between a KK (株式会社) and a GK (合同会社), and has regulatory reporting implications that must be addressed alongside the corporate mechanics.
Two Core Types of Capital Increase for a KK#
A KK has two primary methods of increasing share capital, and they have different legal mechanics and shareholder implications.
Method 1: Third-Party Allocation (第三者割当増資)
A third-party allocation (daisan-sha wariate zoshi) issues new shares to a specific named subscriber who is not a current shareholder, or to an existing shareholder but outside a proportional rights offering. This is the most common mechanism when:
- A new investor is acquiring a stake in the company
- A foreign parent company is injecting additional equity into its Japan subsidiary
- The company is raising capital from a specific strategic partner
The legal mechanics are as follows:
(a) The board of directors (取締役会) resolves to issue new shares to the named subscriber, specifying the number of shares, issue price, and payment deadline (Companies Act Article 199, 会社法第199条)
(b) If the issue price is significantly below fair value (particularly relevant for companies with assets exceeding registered capital), shareholder approval may be required
(c) The subscriber pays the subscription amount into a designated bank account
(d) The representative director files the capital change registration with the Legal Affairs Bureau (法務局) within 2 weeks of the payment date
(e) The registration certificate (登記簿謄本) is updated to reflect the new capital amount
Method 2: Shareholder Allocation (株主割当増資)
A shareholder allocation issues new shares to existing shareholders in proportion to their current holdings. This maintains the existing ownership ratio and is used when the company wants to raise equity without changing who owns it.
It fits two situations:
- The foreign parent is the sole shareholder and wants to inject additional capital while maintaining 100% ownership
- The company has multiple shareholders who all wish to participate proportionally
A shareholder allocation proceeds as follows:
(a) The board resolves the terms, including the subscription ratio, issue price, and deadline by which shareholders must exercise their rights (Companies Act Article 202, 会社法第202条)
(b) Shareholders who do not subscribe by the deadline forfeit their allocation
(c) Payment, registration, and registry amendment follow the same process as a third-party allocation
Capital Increase for a GK#
A GK (合同会社) has a different capital structure. It has members (社員 (shain)) rather than shareholders, and their capital contributions are recorded in the articles of incorporation (定款 (teikan)) as member contributions.
A GK capital increase requires a 定款 amendment and member consent. To increase the capital of a GK:
(a) The existing members (or the sole member) resolve to admit a new member or increase the existing member's contribution (Companies Act Article 585, 会社法第585条)
(b) If the 定款 specifies the capital contribution amount, the 定款 must be amended (teikan henko (定款変更))
(c) The contributing member pays the new capital into the company's bank account
(d) The representative member files the capital change registration with the Legal Affairs Bureau within 2 weeks
(e) The 登記簿謄本 is updated to reflect the new capital amount and any change in member structure
For a GK, admitting a new member requires the consent of all existing members unless the 定款 provides otherwise. If the foreign parent is the sole member, this is straightforward. If there are multiple members, review the 定款 for consent requirements before proceeding.
Registration Tax (登録免許税)#
Every capital increase registration requires payment of 登録免許税 (torokumen-kyozei) to the Legal Affairs Bureau at the time of filing.
The rate is 7/1,000 of the amount of the capital increase (i.e., 0.7%). The minimum is ¥30,000.
At that rate, the tax works out as follows:
- ¥5,000,000 capital increase: ¥5,000,000 × 0.007 = ¥35,000 (above minimum)
- ¥1,000,000 capital increase: ¥1,000,000 × 0.007 = ¥7,000, so minimum ¥30,000 applies
- ¥50,000,000 capital increase: ¥50,000,000 × 0.007 = ¥350,000
This cost is in addition to the judicial scrivener (司法書士) fee for preparing and filing the registration documents, which typically ranges from ¥50,000 to ¥150,000 depending on complexity.
FEFTA Reporting: The Obligation Most Foreign-Owned Companies Miss#
When a foreign company or foreign individual injects equity capital into a Japan entity, the transaction is generally classified as a foreign direct investment (tainai chokusetsu toshi (対内直接投資)) under the Foreign Exchange and Foreign Trade Act (FEFTA (外為法)).
This triggers reporting obligations that are separate from and in addition to the corporate registry filing.
The Two FEFTA Reporting Mechanisms
Pre-notification (jizen todokede (事前届出)) is required before executing the capital increase when the Japan entity operates in a designated industry (指定業種) under 外為法第26条. Designated industries include defence, nuclear, broadcasting, telecommunications, aerospace, cybersecurity, and certain financial services, among others.
In that case the investor must file with the Bank of Japan (transmitting to the Ministry of Finance and the relevant sectoral ministry) and wait for the statutory review period (standard: 30 days, extendable) before making the capital contribution. Investing during the waiting period is prohibited.
Post-reporting (jigo hokoku (事後報告)) covers capital increases that do not trigger pre-notification (non-designated industries, or designated industries that meet exemption criteria): a post-investment report must be filed with the Bank of Japan within 45 days of the capital injection.
Many foreign-owned Japan subsidiaries in non-sensitive industries assume that capital increases have no regulatory dimension beyond the corporate registry filing, but post-reporting to the Bank of Japan under FEFTA is mandatory for most foreign equity injections into Japan entities, regardless of industry. Missing the 45-day window is a violation of 外為法.
Who the Reporting Obligation Falls On
The reporting obligation under FEFTA falls on the foreign investor (the entity making the capital contribution). For a foreign parent company injecting capital into its Japan subsidiary, the foreign parent is the filer, not the Japan entity.
Practically, this means the Japan entity's compliance team or Aplash as regulatory representative coordinates the filing on behalf of the foreign parent.
Capital Increase vs. Shareholder Loan#
Not every fund injection from a foreign parent into a Japan subsidiary needs to be structured as a capital increase. The alternative is a shareholder loan (oyagaisha kariirekin (親会社借入金)).
| Consideration | Capital Increase (増資) | Shareholder Loan (借入) |
|---|---|---|
| Balance sheet treatment | Equity (net assets increase) | Liability (debt) |
| Effect on registered capital | Increases registered capital | No change |
| FEFTA reporting | Yes (対内直接投資) | Yes (may constitute 対内直接投資 for loans from foreign parent, depending on terms) |
| Repayment | Not required | Required per loan terms |
| Interest | No interest | Interest must be set at arm's length (transfer pricing) |
| Tax treatment in Japan entity | Capital (non-deductible) | Interest payments deductible (within thin capitalisation rules) |
| Registration cost | Yes (登録免許税 0.7%) | None |
| Impact on visa capital requirements | Counts toward deployed capital for Business Manager visa | Generally not recognised as deployed equity capital for visa purposes |
The choice turns on these factors:
- If the Japan entity needs to show higher equity capital for visa, banking, or contract purposes, a capital increase is the right structure.
- If the Japan entity needs liquidity temporarily and the funds will be returned, a shareholder loan is operationally simpler.
- Transfer pricing rules require shareholder loans to be priced at arm's length. Loans between related parties at artificially low (or zero) interest rates will be re-priced by the National Tax Agency (NTA (国税庁)) if discovered.
Effect on Business Manager Visa Requirements#
The capital amount is a material factor for companies supporting a Business Manager visa (経営・管理ビザ) application for a foreign operator.
Post-October 2025 reforms significantly raised the minimum capital threshold: capital must be at least ¥30M and must be demonstrably deployed in business operations.
A capital increase by itself does not satisfy the visa requirement unless the injected capital is then used in operations (hiring, leasing, procurement, investment in assets). The visa examiner evaluates substance, which the registry number alone does not show.
A company incorporated with lower capital that is now planning a Business Manager visa application needs a capital increase followed by deployment of the capital into genuine operations.
Step-by-Step: Capital Increase for a KK (Third-Party Allocation)#
Step 1: Board resolution The board passes a resolution specifying: number of new shares to be issued, issue price per share, subscriber name, and payment deadline.
Step 2: Subscription agreement The subscriber signs a share subscription agreement (株式引受契約書) committing to pay the subscription amount by the deadline.
Step 3: Capital payment The subscriber transfers the subscription amount to the company's designated bank account. A bank statement confirming receipt is required for the registry filing.
Step 4: FEFTA pre-notification (if required) If the Japan entity is in a designated industry, file pre-notification before payment. Do not proceed to Step 3 until the waiting period expires.
Step 5: Registry filing The 司法書士 prepares the registry amendment documents and files with the Legal Affairs Bureau. Filing must occur within 2 weeks of the payment date. The 登録免許税 is paid at this step.
Step 6: FEFTA post-report (if not pre-notified) Within 45 days of the capital injection (Step 3), file the post-investment report with the Bank of Japan.
Step 7: Update company records Issue a share certificate if required by the 定款, update the shareholder register (株主名簿), and distribute the updated 登記簿謄本 to banking counterparties and other parties who require updated corporate information.
Common Mistakes#
Failing to file the FEFTA post-report is the most common compliance gap for foreign-owned subsidiaries conducting routine capital increases. The 45-day window starts from the payment date, not the registry filing date.
Delaying the registry filing beyond 2 weeks breaches the Companies Act deadline for registry amendment and attracts a fine on the representative director personally (Companies Act Article 976, 会社法第976条).
Injecting capital without updating the 定款 for a GK is a mistake when the GK's 定款 specifies the member's capital contribution amount: that amount must be amended before or simultaneously with the contribution. An unrecorded contribution creates inconsistency between the 定款 and the registry.
Treating a capital increase as equivalent to deploying capital for visa purposes misses the visa requirement: the capital must be used, as the visa section above explains.