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Who Owns a Company? How Shares, Capital, and Free Apps Work Together

Category: Technology

When walking through town, you often see signs for factories or trucks that include the words "Corporation" (Kabushiki-gaisha). However, nearby vegetable shops or small restaurants often do not have these words on their signs. Even though both are businesses, why is there such a difference? The presence of these characters indicates a specific type of company structure.

This article explores what a company is under the law, where its money comes from, who owns it, and how even "free" apps manage to make a profit. We will follow these steps in order to understand the system behind the signs we see every day.

1. Corporations: Why a Company Counts as a Legal Person

Why do some companies have this title and others do not? The answer lies in the Companies Act, which treats entities like corporations as "legal persons." In Japan, the term is hojin. This means that under the law, a company can sign contracts and own property just like a living human being. The company itself is treated as an independent person, separate from its president.

Because of this, the president’s personal wallet and the company’s safe are legally separate. Even if the president changes, the company as a "person" continues to exist, and contracts remain valid. Conversely, if the president has personal debts, the company’s assets are generally not used to pay them back by default. Many local vegetable shops do not go through the process to become legal persons; they trade under the owner’s personal name. Therefore, their signs do not say "Corporation." The title is like a name tag showing that this entity can issue shares. But when this "person" is born, who provides the first money?

2. Capital: Where a Company's Starting Money Comes From

To start a company, you need money to rent an office, buy materials, and pay initial salaries. This seed money is called capital (shihonkin). In the past, starting a corporation required a minimum of 10 million yen in capital. However, when the new Companies Act took effect in 2006, this minimum requirement was abolished. Now, legally, you can establish a corporation with as little as 1 yen of capital [1].

If the founders cannot provide enough money alone, they ask others to contribute. This contribution of capital (shushi) is how outsiders help fund the business. As proof of this investment, the company gives out shares (kabushiki), which represent the rights of the person who paid. The people holding these shares are shareholders (kabunushi). For example, if 100 people contribute the same amount and the company issues 100 shares, each person holds one. Note that if a company does not plan to gather money widely by issuing shares, it can choose a form called godo-gaisha, which is a company type that does not issue shares. But once people invest in a company, who actually owns it?

3. Shareholders: How Owners Get Dividends and Have a Say in Meetings

Shareholders who invest do not always run the business themselves. Often, management is left to directors (torishimariyaku). However, the owners of the company are still the shareholders. Corporations have a shareholder meeting (kabunushi-sokai) where important matters decided by law or articles of incorporation are voted on [3]. The day-to-day work is left to the chosen directors.

Shareholders receive two main types of rewards. One is dividends (haito), which are payments from a portion of the company’s profits [4]. The other is the profit gained by selling shares if their value rises, such as when a company grows. This is why investors put money into companies they may not know well. There is risk, though. If a company fails and goes bankrupt, the invested money may not be returned. However, thanks to limited liability (yugen-sekinin), shareholders only lose up to the amount they invested [5]. They are generally not required to pay the company’s debts beyond their initial investment. So, how do free apps, which take no money from users, earn enough to pay dividends?

4. Free Apps: How Ads and Freemium Plans Make Money

Many search engines, social media sites, and map apps are free to use. The companies behind them are often corporations that must return value to shareholders. The answer is often advertising (koko). According to a survey published by the Japan Fair Trade Commission in 2021, digital advertising is a major revenue source for platform operators like search engines and social media sites [6]. Users do not pay money; instead, they see ads. The companies paying are the advertisers who want to reach those users.

Another method is called freemium. Basic features are free, but convenient extras or ad-free rights cost money [7]. As more people use the free version, some switch to paid plans, generating revenue. Even services that look free rely on someone paying somewhere—either advertisers or premium subscribers. But why do companies exist in the first place?

5. Articles of Incorporation: Why Companies Are Created

At this point, a company might seem like just a machine for gathering and making money. However, that is not the only reason to start one. When establishing a corporation, you must create articles of incorporation (teikan). These documents must state the company’s "purpose" (mokuteki)—what kind of business it will conduct. Articles without a stated purpose are not legally recognized [8].

Profits and dividends are essential for continuing business. Without profit, salaries and dividends cannot be paid, and the business itself may stop. In this sense, profit is less of a final goal and more of a means to keep fulfilling the company’s purpose. The word "Corporation" on street signs is not just a title. It is a short declaration: "This company is a legal person that gathers money through shares and operates for the purpose written in its articles."

6. Investigate Further: Finding Company Types Near Your Home

You can explore these ideas near your home. Walk around and compare signs or truck names. Look for shops with "Corporation" or godo-gaisha versus those with just a personal name. Which types of businesses use which forms?

Choose one free app your family uses. Check the terms of service or settings screen for the word "advertising." Note if the ads shown are similar to things you usually search for or look at. If you want to go deeper, the Financial Services Agency operates a site called EDINET. Anyone can read securities reports of listed companies for free [9]. You might enjoy peeking into what purpose your known companies have written in their articles.

Sources

  1. Wikipedia, "Corporation" https://ja.wikipedia.org/wiki/%E6%A0%AA%E5%BC%8F%E4%BC%9A%E7%A4%BE (Notes that corporations are legal entities with limited liability for shareholders and that the minimum capital requirement was abolished in 2006.)
  2. e-Gov Law Search, "Companies Act" Article 3 https://laws.e-gov.go.jp/law/417AC0000000086 (Cites the specific article stating that companies are legal persons.)
  3. Wikipedia, "Shareholders' Meeting" https://ja.wikipedia.org/wiki/%E6%A0%AA%E4%B8%BB%E7%B7%8F%E4%BC%9A (Explains that the shareholders' meeting is the highest decision-making body, electing directors and approving profits.)
  4. Wikipedia, "Dividend" https://ja.wikipedia.org/wiki/%E9%85%8D%E5%BD%93 (Defines dividends as profit distribution to shareholders, noting they may not be paid if management struggles.)
  5. Wikipedia, "Limited Liability" https://ja.wikipedia.org/wiki/%E6%9C%89%E9%99%90%E8%B2%AC%E4%BB%BB (Describes limited liability as a system where responsibility is restricted to the amount invested.)
  6. Japan Fair Trade Commission, "Survey on Digital Platform Business Practices (Digital Advertising Sector)" (2021) https://www.jftc.go.jp/houdou/pressrelease/2021/feb/210217.html (States that digital advertising is a major revenue source for platform operators who collect consumer data.)
  7. Wikipedia, "Freemium" https://ja.wikipedia.org/wiki/%E3%83%95%E3%83%AA%E3%83%BC%E3%83%9F%E3%82%A2%E3%83%A0 (Defines freemium as a business model offering basic services for free while charging for advanced features.)
  8. Wikipedia, "Articles of Incorporation" https://ja.wikipedia.org/wiki/%E5%AE%9A%E6%AC%BE (Notes that articles must include the company's purpose; otherwise, they are invalid.)
  9. Financial Services Agency, "About EDINET" https://www.fsa.go.jp/search/20130917.html (Explains that EDINET is an electronic disclosure system where anyone can view securities reports.)