A is a type of corporation

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 which can be formed under Japanese law

Japanese law

-Historical Developments:Pre-Modern History The early law of Japan was heavily influenced by Chinese law. Little is known about Japanese law prior to the seventh century, when the Ritsuryō was developed and codified. Before Chinese characters were transplanted and adopted by the Japanese, the...

. SPCs were enacted by the Diet of Japan

Diet of Japan

The is Japan's bicameral legislature. It is composed of a lower house, called the House of Representatives, and an upper house, called the House of Councillors. Both houses of the Diet are directly elected under a parallel voting system. In addition to passing laws, the Diet is formally...

 in Law No. 105 of 1998.

The main features of an SPC are:

• An SPC can only be used for the . It cannot manage or dispose of assets, although it can commission these activities to a third party manager.
• If certain conditions are met, an SPC can write off the assets it distributes as losses for tax purposes, thus exempting those distributions from corporate tax
  Corporate tax
  Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
  
  ation.

SPCs are the only corporate entity which can make tax-free distributions under Japanese tax law as of 2006, and are an attractive alternative to general partnership

General partnership

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:...

s, tokumei kumiai

Tokumei kumiai

, literally "anonymous partnerships," are a Japanese bilateral contract governed by the Commercial Code of Japan, Article 535 et seq. In English, they are often called TK or silent partnerships...

, trust

Trust law

In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

s or other tax-free alternatives in a number of investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 transactions.

Structure

An SPC is formed by registering articles of incorporation

Articles of Incorporation

The Articles of Incorporation are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency.An equivalent term for LLCs in the United States is the Articles of Organization...

 with a Legal Affairs Bureau, a branch office of the Ministry of Justice. Each SPC must have at least one director

Board of directors

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...

 and at least one statutory auditor

Statutory auditor

A is an official found in Japanese kabushiki kaisha .Statutory auditors are elected by shareholders and hold a position in the hierarchy alongside the board of directors. A kabushiki kaisha must have at least one statutory auditor, unless the transfer of shares is restricted in the articles of...

.

Investing in an SPC

An SPC may issue any of five types of securities

Security

Security is the degree of protection against danger, damage, loss, and crime. Security as a form of protection are structures and processes that provide or improve security as a condition. The Institute for Security and Open Methodologies in the OSSTMM 3 defines security as "a form of protection...

 in exchange for an investment:

1. , equity
   Stock
   The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
   
    securities similar to shares of preferred stock
   Preferred stock
   Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
   
   , where the bearers have rights to share in the profits of the company, but cannot participate in decision-making

Taxation

In order for its distributions to be exempt from corporate taxes, an SPC must meet a number of criteria:

1. Be registered on the national list of SPCs (maintained by the Prime Minister's office)
2. Either:
   • Have ¥100,000,000 or more in outstanding special bonds, or
   • Have all of its outstanding bonds held by institutional investor
     Institutional investor
     Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets...
     
     s, or
   • Have more than fifty holders of preferred investment certificates, or
   • Have all of its outstanding preferred investment certificates held by institutional investors
3. Conduct at least 50% of the total value of its equity and debt offerings within Japan
4. Have an accounting period of one year or less
5. Conform to the purposes permitted for SPCs throughout the tax year in question