One of the first questions entrepreneurs face is whether to start as a sole proprietor or a corporation. In tax terms, the choice is between income tax and corporation tax.

Every entrepreneur has individual circumstances, so no single answer applies, but a recent trend, particularly where funds are limited, is:

First, build a product and test the market as a sole proprietor without overthinking the structure. Incorporate if it looks promising.

Many people seem to take this approach.

In Japan's startup community, Liverty which emerged from BASE is a typical example. According to Company Profile, the service launched in November 2012 and incorporated the following month, December.

The following book, which I recently read and found fascinating, also discusses the background.

Original Japanese publication.
My Escape
By Kazuma Ieiri

Ieiri is a well-known Japanese entrepreneur who, at the time, was the youngest person to take a company public on JASDAQ. I particularly enjoyed the assessment of Ieiri by the equally well-known investor Taiga Matsuyama in the afterword.

The following autobiographical book by Ieiri is also interesting.

Original Japanese publication.
Even Someone Like Me Could Become a Company President
By Kazuma Ieiri

I have digressed already, butincorporating after a service gains traction makes considerable sense,in my view.
If you incorporate first and then develop a service that fails, the incorporation expenses are simply wasted.

In Japan, incorporation expenses have a fairly standard range. As another aside, among Asian jurisdictions, only places such as Singapore and Hong Kong have incorporation costs as low as Japan's. Costs tend to be higher in emerging economies because of regulatory requirements such as minimum capital and business licenses. Developed economies do benefit from deregulation.

If starting a business in Japan, incorporation is generally handled by a judicial scrivener. Actual expenses such as notarization of the articles, plus approximately JPY50,000 in professional fees, total around JPY250,000. This is likely similar regardless of the judicial scrivener used.

Cost-conscious founders may also want to save the JPY50,000 judicial scrivener fee.
Personally, I think that cost awareness at startup is very important.

However, judicial scriveners can arrange electronic notarization of the articles, saving JPY40,000 in stamp duty. Even allowing for their JPY50,000 fee, the difference is actually only about JPY10,000. You might handle electronic notarization yourself too, but at that point it becomes a calculation of money versus time.

There are various corporate forms.

Besides a stock company, there is the limited liability company form, used by Apple Japan. The company founded by Ieiri, now GMO Pepabo, was originally a limited partnership company, apparently—a goshi kaisha, not a godo kaisha. A change of legal form can address this later, but the key considerations are the extent of liability and your exit as founder.

This may be confusing for an ordinary entrepreneur, but “corporation” encompasses a huge variety of entities and a very wide range of choices. See: Wikipedia: Legal Person）

My conclusion is that, if you plan to start and exit a business in Japan, a stock company is a safe choice.That is why most people incorporate as stock companies.

The remaining question is whether to handle incorporation registration yourself or leave it to a judicial scrivener.

I recently read this article and found it thought-provoking. Trying it yourself at first may be valuable. Notaries, notarial offices, the Legal Affairs Bureau, and other public authorities are unavoidable parts of running a company.

If you have time when starting up, dealing with these authorities yourself once may be a useful learning experience and sharpen your cost awareness. I once incorporated a company entirely on my own, but found it so troublesome that I have used judicial scriveners ever since. Still, doing it once gave me an understanding of the process, so I consider that experience worthwhile.