Law for facilitating the creation of New Business

February 1999
Ministry of International Trade and Industry

In order to break out of the present recession in the economy and secure more employment opportunities, creating new business must be seen as a prime policy task. This should be achieved through comprehensive policy packages, including budget measures, taxation measures, and deregulation, as well as appropriate management of the macro-economy. In line with the Industrial Rehabilitation Plan initiated by the Prime Minister, Ministry of International Trade and Industry has enacted all-embracing legislation to support new business(Law for the Promotion of New Business Creation), in addition to the budget measures in the Emergency Special Framework for Economic Countermeasures.

  1. Background: a decline in economic vitality and a worsening employment situation

    1. The ongoing harshness of the Japanese economy
      (1) Full unemployment is at its highest level.
      (2) Existing industries (particularly manufacturing industries) are burdened by surplus equipment and manpower. While creating new outlets for existing employees through split-offs, they are also trying hard to streamline their main business and recover their competitive edge.
      (3) The rate of business starts in Japan is conspicuously lower than that in the USA, and has actually trailed the rate of business closures in recent years.
      USA: business starts 13.8%, closures 11.4% (1994) Japan: business starts 3.7%, closures 3.8% (1994-96)
    2. The huge latent potential of the Japanese economy
      An abundance of human resources, technology, and other industrial resources in Japan has been accumulated in corporations and regions.

    3. A large body of highly motivated workers of both sexes
      About 700,000 people have joined the search for jobs, including some 300,000 women. In order to address these factors, it is essential that we encourage the creation of new business, restore the vitality of the Japanese economy, and create new employment opportunities.
      The Law is based on the following three principles.
      1) To provide broad support for individuals, medium/small companies, and others wanting to start up new business.
      2) To support business activities by medium/small enterprises that make use of new technology.
      3) To aim to develop a business environment that makes use of regional industrial resources.
  2. Main measures incorporated in the Law

    1. Support for business starters The law supports all new business starts, regardless of whether by individuals (retired company employees, housewives, students, etc.) or through split-offs of existing companies, and regardless of the business sector.
      - Grants by the Japan Small Business Corporation
      The Japan Small Business Corporation will award grants of between 1 and 5 million yen to around 1,000 cases per year for new business enterprises attempting to turn new ideas into specific business, and for test manufacture and development, sales route development, and other efforts .
      - Creating a special debt guarantee scheme for business starters .
      As a trust supplementation system for business starters, the law sets up a special framework not requiring third-party guarantees (amount commensurate with self-capital, up to a maximum of 10 million yen), enabling the use of debt guarantees from the stage of pre-business start-up.
      Note: For people who have a certain amount of business experience, those who have received occupational training, and others, loans have been started for business start-up costs limited to the same amount as the self-capital (up to a maximum of 5.5 million yen), in the case of those with 6 months' instruction in business management.
      - Creating special exceptions to the stock option system
      To enable smoother procurement of human resources by recently started medium/small businesses, the law doubles the framework for the stock option system as special exceptions (from one-tenth to one-fifth of the total number of shares issued).
      - Creating systems of debt guarantee and capital investment by the Industrial Structure Improvement Fund
      The law creates a system of debt guarantees (maximum \1.5 billion) for business starters who cannot easily be handled by the Credit Guarantee Association (such as spilt-offs from existing companies). At the same time, the law also provides capital investment for starters.
    2. Support for business activities by medium/small enterprises making use of new technology
      - Priority investment of government research & development funds for medium/small ventures
      The law requires the government and special corporations to draw up expenditure targets for the government and special corporations, including subsidies for research & development in new technology for medium/small companies.
      To provide comprehensive support for efforts to create new business using the results of this R&D, the law, for example, expand the debt guarantee framework (e.g. from \200 million to \300 million yen) and create a special framework that does not require collateral or third party guarantees (\20 million for those who receive the subsidies. ).
    3. Improving the business environment using local industry resources
      - Application of advanced technology accumulated by industry to provide a springboard for creating new business
      As a springboard for the new business creation, the law progressively incorporates the Technopolis Act and the Brain Location Act in order to make positive use of the industrial accumulation of advanced technology now being formed under these and other laws. We will also enhance support measures to this end.
      Specifically, in addition to conventional tax measures and, we will establish special cases of medium/small company trust insurance, while the Japan Regional Development Corporation will provide capital for persons developing new business support facilities ("incubators").
      - Developing a comprehensive support system (platform) for the creation of new business in regional areas
      The law develops a comprehensive support system (platform) for the creation of new business in regional areas, led by initiatives from prefectures and other local authorities. Existing industrial support bodies (the Technopolis Foundation, the Small Business Promotion Corporation, and others) will be unified and networked in order to create new business, and will provide comprehensive services from research and development to commercialisation. To this end, as well as vastly enhancing budget measures (1999FY) for related support activities, the law relaxes the conditions set out in the Law for Modernisation Capital and Other Aid for Small Business for special cases, in order to make it easier to unify the Corporation etc. with other Foundations.

      At the same time, support for projects by new business support bodies aimed at training human resources in the IT industry will be provided.