Risks of Changing from a Corporation to a Sole Proprietorship Under the Business Manager Visa#

For foreign entrepreneurs operating in Japan under the “Business Manager” (Keiei-Kanri) visa, the structure of their business entity is a fundamental component of their residency status. While many start by establishing a corporation, such as a Kabushiki Kaisha (KK) or Godo Kaisha (GK), there are instances where business owners consider dissolving the corporation to become a “Sole Proprietor” (Kojin Jigyo-nushi). This is often driven by a desire to reduce administrative costs, simplify tax filings, or downsize operations during challenging economic times.

However, from the perspective of the Immigration Services Agency of Japan, transitioning from a corporate entity to a sole proprietorship carries significant risks. It is frequently perceived not merely as a structural change, but as a “downgrade” in business credibility. This article provides an objective analysis of why this transition is scrutinized heavily and the specific risks involved in maintaining a Business Manager visa under these circumstances.

The Perception of “Downgrade” and Business Stability#

The core requirement for the Business Manager visa is the “stability and continuity” of the business. In the Japanese business landscape, corporations are generally viewed as having higher social credibility than sole proprietorships. A corporation has a distinct legal personality, mandatory registration, and strict requirements for financial reporting and tax separation.

When a foreign entrepreneur dissolves a corporation to become a sole proprietor, Immigration officials often interpret this as a sign of business failure or financial distress. The assumption may be that the business can no longer support the costs of maintaining a corporate structure (such as corporate inhabitant taxes or accountant fees). Since the Immigration Bureau prioritizes businesses that show potential for growth and longevity, a structural regression can be a red flag. It triggers a presumption that the business lacks stability, potentially leading to a denial of the visa extension or a reduction in the period of stay (e.g., being downgraded to a 1-year visa or denied renewal entirely).

The Challenge of Proving the 5 Million Yen Investment#

One of the fundamental criteria for the Business Manager visa is a business scale of at least 5 million JPY (or hiring two full-time resident employees).

In a corporate structure, this amount is typically reflected clearly in the “Net Assets” section of the Balance Sheet as capital stock or surplus. It is legally distinct from the owner’s personal wallet.

In a sole proprietorship, however, there is no legal concept of “Capital Stock.” The line between personal assets and business assets can easily become blurred. When transitioning to a sole proprietorship, proving that the 5 million JPY investment is still actively tied up in the business becomes technically difficult. If the corporation is dissolved and the capital is returned to the individual, Immigration may suspect that the money is being used for living expenses rather than business operations. To maintain the visa, the applicant must provide objective documentation (such as bank statements, receipts for business assets, and inventory lists) proving that assets totaling 5 million JPY are still dedicated solely to the business. If the net business assets fall below this threshold, the visa requirements are no longer met.

A significant risk area involves Social Insurance (Shakai Hoken), which includes health insurance and pension.

Corporations: Enrollment in Social Insurance is mandatory for all corporations, even if the director is the only employee.
Sole Proprietorships: Enrollment is generally only mandatory if the business employs five or more people (with exceptions for certain industries).

Immigration authorities place a high value on compliance with Japanese laws. If a business owner switches to a sole proprietorship specifically to avoid paying the employer’s share of Social Insurance premiums, this is viewed negatively. It may be interpreted as a lack of financial capacity or an attempt to evade social responsibilities. Even if legal under labor laws, opting out of the social safety net can weaken the “suitability” aspect of the visa review. The applicant must demonstrate that they are enrolled in the appropriate National Health Insurance and National Pension schemes as an individual, and that they have no outstanding tax liabilities.

Physical Office Requirements#

The requirement to secure a dedicated physical office space is strictly enforced for the Business Manager visa. When operating as a corporation, the lease is typically in the company’s name, establishing a clear separation from the individual’s residence. Upon switching to a sole proprietorship, there is often a tendency to move operations to a home office to save costs.

However, using a portion of a private residence as a business office is subject to rigorous scrutiny. The business space must be clearly demarcated from the living space, and there must be a distinct arrangement for utility bills and usage rights. If the transition to sole proprietorship involves giving up a dedicated commercial office, the Immigration Bureau may determine that the facility requirement is no longer met, leading to visa cancellation or non-renewal.

The Necessity of a Rational Business Plan#

Ultimately, while the transition from a corporation to a sole proprietorship is not legally prohibited, it requires a compelling explanation. The applicant must prove that the change is a strategic management decision intended to ensure the long-term survival and eventual growth of the business, rather than a desperate measure to stave off bankruptcy.

A simple statement of “cutting costs” is insufficient. A detailed business plan is required, explaining:

Why the sole proprietorship model is currently more suitable for the business activities.
Projected financial statements (PL/BS) showing how the business will remain profitable.
Evidence that the business scale (5 million JPY) is maintained.

Conclusion#

Transitioning from a corporation to a sole proprietorship under the Business Manager visa is a high-risk procedure that invites intense scrutiny regarding the stability and continuity of the business. The loss of corporate status can be interpreted as a regression in business scale. To succeed in renewing or changing the visa status under these conditions, the applicant must provide overwhelming evidence of financial solvency, strict legal compliance, and a strategic roadmap for the future. It is a process that demands transparency and meticulous documentation to overcome the inherent skepticism of the immigration authorities.