VIII.SMALL AND MEDIUM ENTERPRISE BASIC LAW

(Act No. 154 of 1963: Amended in December 3, 1999)

  [ CHAPTER I ] GENERAL PROVISIONS

(Purpose)

Article 1: The purpose of this Law is to promote in a comprehensive manner measures for small and medium enterprises (hereinafter referred to as “SMEs”) by establishing the basic principles, basic policies and other basic matters relating to measures for SMEs and clarifying the responsibilities, etc. of the State and of local public entities, so as to contribute to the sound development of the national economy and improvement in the quality of life of the people.

(Scope of SMEs and Definitions)

Article 2: The SMEs covered by the measures adopted by the State under this Law shall in general be those that fall under any of the following items, and the scope thereof shall be determined for each measure so that such measures may be effectively implemented to realize the basic principles described in the following Article:
(1) Any entity which is a company whose capital or total amount of investment does not exceed three hundred million yen (¥ 300,000,000), or a company or an individual whose regular workforce does not exceed three hundred persons, and which is principally engaged in manufacturing, construction, transportation or any other category of business (except those categories of business mentioned in any of items (2) to (4) below);
(2) Any entity which is a company whose capital or total amount of investment does not exceed one hundred million yen (¥ 100,000,000), or a company or an individual whose regular workforce does not exceed one hundred persons, and which is principally engaged in the wholesale trade;
(3) Any entity which is a company whose capital or total amount of investment does not exceed fifty million yen (¥ 50,000,000), or a company or an individual whose regular workforce does not exceed one hundred persons, and which is principally engaged in the service industry;
(4) Any entity which is a company whose capital or total amount of investment does not exceed fifty million yen (¥ 50,000,000), or a company or an individual whose regular workforce does not exceed fifty persons, and which is principally engaged in the retail trade.
2. The term “business innovation” as used in this Law shall mean the substantial improvement of business through the development or production of new products, development or provision of new services, introduction of new methods of producing or marketing products, introduction of new methods of providing services, introduction of new methods of business management, or other new business activities.
3. The term “creative business activity” as used in this Law shall mean those business activities which are the object of business innovation or start-ups and which involve the use of remarkably original techniques or remarkably creative methods of business management.
4. The term “business resources” as used in this Law shall mean the plants, equipment, technologies, skills and knowledge of individuals, and other resources utilized in business activities.
5. The term “small enterprise” as used in this Law shall generally mean an enterprise with a regular workforce not in excess of twenty persons (or five persons in the case of enterprises which are principally engaged in commerce or the service industry).

(Basic Principles)

Article 3: In the light of the fact that SMEs, by engaging in distinctive business activities in a variety of fields of business and providing diverse employment opportunities where individuals can demonstrate their abilities, form the foundations of the Japanese economy, and that many SMEs, which display originality and resourcefulness and engage in business activities with the aim of improving business, have a particularly important role to play in maintaining and strengthening the vitality of the Japanese economy by, among other things, creating new industries, increasing employment opportunities, encouraging competition in the market, and vitalizing regional economies, the diverse and dynamic growth and development of SMEs must be encouraged by promoting business innovation and start-ups among them, strengthening their business fundamentals, and smoothing their adaptation to changes in social or economic conditions so as to foster the autonomous efforts of independent SMEs.

(Responsibility of the State)

Article 4: The State is responsible for formulating and implementing overall measures for SMEs in accordance with the basic principles described in the preceding Article (hereinafter referred to as the “basic principles”).

(Basic Policy)

Article 5: The Government shall adopt measures for SMEs in accordance with the following basic policy of:
(1) Promoting business innovation and start-ups and promoting creative business activity among SMEs;
(2) Strengthening the business fundamentals of SMEs by facilitating the acquisition of business resources by SMEs and improving the fairness of transactions involving SMEs, etc.;
(3) Smoothing adaptation to changes in the economic or social environments by promoting the business stability and facilitating the business conversion of SMEs in response to such changes, etc.;
(4) Facilitating the financing of SMEs and enhancing the equity capital of SMEs.

(Responsibility of Local Public Entities)

Article 6: Local public entities are responsible for formulating and implementing measures for SMEs which are suited to the natural, economic or social conditions in a local public entity's locality, and which are in accordance with the basic principles and based on an appropriate division of roles with the State.

(Efforts of SMEs, etc.)

Article 7: SMEs must endeavor to independently improve their management and terms and conditions of business in order to respond to changes in the economic or social environment and to grow and develop their businesses.
2. Associations related to SMEs, such as organizations for furthering business cooperatives among SMEs, must endeavor to work with SMEs to realize the basic principles in the performance of their business activities.
3. Any party other than SMEs whose activities bear on SMEs must cooperate in the implementation by the State and local public entities of measures for SMEs.

(Consideration for Small Enterprises)

Article 8: Given the many particular difficulties faced by small enterprises in acquiring business resources, the State shall, in devising measures for SMEs, endeavor to develop and improve the management of small enterprises and shall, with regard to finance, the taxation system and other matters, show due consideration for the business conditions of small enterprises.

(Legislative Steps, etc.)

Article 9: The Government shall take the necessary legislative, fiscal and financial steps to implement measures for SMEs.

(Surveys)

Article 10: The Government shall, after hearing the opinion of the Small and Medium Enterprise Policy-Making Council, periodically conduct the necessary surveys to determine the actual conditions of SMEs and shall publish the results thereof.

(Annual Reports, etc.)

Article 11: The Government shall, every year submit to the Diet a report on trends among SMEs and measures implemented by the Government for SMEs.
2. The Government shall, every year after hearing the opinion of the Small and Medium Enterprise Policy-Making Council, prepare a statement explaining the measures to be adopted in the light of the trends among SMEs described in the report stipulated in the preceding Subsection, and shall submit it to the Diet.
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  [ CHAPTER II ] BASIC MEASURES

CLAUSE 1 : Promotion of Business Innovation and Start-Ups of SMEs

(Promotion of Business Innovation)

Article 12: In order to promote business innovation at SMEs, the State shall promote research and development related to technologies for developing new products and services; promote the introduction of plants and equipment to substantially improve the efficiency of production and sale of products; promote the introduction of new methods of business management for integrated control of product development, production, transportation and sale; and take any other necessary measures.

(Promotion of Start-Ups)

Article 13: In order to promote start-ups of SMEs, the State shall provide information on and improve training for start-ups, facilitate the financing of start-up expenses, and take any other necessary measures, and shall also endeavor to increase public interest in and understanding of the importance and need for start-ups.

(Promotion of Creative Business Activity)

Article 14: In order to promote the creative business activities of SMEs, the State shall promote research and development concerning remarkably original techniques related to the production or sale of products or provision of services, develop systems to facilitate the acquisition of the necessary human resources and financing through such means as shares and corporate bonds, and take any other necessary measures.

CLAUSE 2 : Strengthening of Business Fundamentals of SMEs

(Acquisition of Business Resources)

Article 15: In order to contribute to the acquisition of the necessary business resources to improve business methods and techniques and otherwise strengthen the business fundamentals of SMEs, the State shall take the following measures and any other necessary measures:
(1) In order to encourage the introduction of plants and equipment by SMEs, the State shall promote the installation and maintenance of plants and equipment furnished for use in business by SMEs;
(2) In order to encourage the improvement of SMEs' technologies, the State shall promote technological research and development undertaken by SMEs; encourage the active participation of SMEs in technological research and development undertaken by the State; promote cooperation between SMEs and the State, independent administrative institutions, prefectural public test and research institutes and universities; and develop programs to train engineers and technicians;
(3) In order to promote the increase of knowledge that is of use in the business activities of SMEs, the State shall develop training programs for business managers and promote the provision of information contributing to the development of new fields of business and other information.
2. In addition to the measures specified in the preceding Subsection, the State shall develop systems to help SMEs acquire business resources by such methods as providing information and advice as required by SMEs.

(Promotion of Exchanges, Business Relationships and Cooperatives)

Article 16: In order to encourage SMEs to complement each other's business resources, the State shall encourage exchanges and business relationships among SMEs, develop organizations for furthering business cooperatives among SMEs, subsidize projects undertaken jointly by SMEs, and take any other necessary measures.

(Vitalization of Industrial Agglomeration)

Article 17: The State shall take the necessary measures to vitalize industrial agglomeration in areas deemed natural, economic or social units where a substantial number of SMEs associate organically in the same category of business or closely related categories of business.

(Vitalization of Commercial Zones)

Article 18: In order to vitalize commercial zones such as shopping districts where a substantial number of small and medium retailers or small and medium service providers engage in business, the State shall develop facilities to help improve convenience for local residents such as customers, develop joint stores, and take any other necessary measures.

(Measures Concerning Labor)

Article 19: The State shall take the necessary measures to help further proper labor relations and improve the welfare of employees in SMEs, and shall develop vocational training and employment service programs and take any other necessary measures to help SMEs acquire the labor force they require.

(Improving Fairness of Transactions)

Article 20: In order to improve the fairness of transactions involving SMEs, the State shall prevent overdue payment of subcontracting fees, promote clarification of the terms and conditions of business, and take any other necessary measures.

(Expansion of Opportunities to Receive Orders from the State, etc.)

Article 21: In order to contributing to the increase in demand for the goods and services provided by SMEs, the State shall expand opportunities for SMEs to receive orders for goods and services from the State, etc., and take any other necessary measures.

CLAUSE 3 : Smoothing Adaptation to Changes in the Economic or Social Environment

Article 22: Where the business activities of a substantial number of SMEs in the same region or the same category of business are or may be impeded as a result of marked changes in the economic or social environments, such as in the structure of trade or in the conditions of supply of raw materials, the State shall take measures to promote the business stability of SMEs, and to facilitate business conversion by SMEs, and take any other necessary measures.
2. The State shall develop systems to prevent unfair impingement on the interests of SMEs resulting from the business activities of parties other than SMEs, so as to promote the business stability of SMEs, and take any other necessary measures.
3. In order to prevent the occurrence of events such as the bankruptcy of an SME resulting from the bankruptcy of its business connections, the State shall develop mutual relief systems for SMEs and take any other necessary measures.
4. In order to facilitate the restructuring or closure of SMEs, the State shall develop business recovery systems, and mutual relief systems for small enterprises, and take any other necessary measures.
5. In taking such measures as stipulated in Subsection 1 and the preceding Subsection, the State shall show due consideration for facilitating the employment of employees of SMEs.

CLAUSE 4 : Facilitation of Financing and Enhancement of Equity Capital

(Facilitation of Financing)

Article 23: In order to facilitate the financing of SMEs, the State shall strengthen the functions of governmental financial institutions, develop a credit insurance system, foster proper lending to SMEs by private-sector financial institutions, and take any other necessary measures.

(Enhancement of Equity Capital)

Article 24: In order to enhance the equity capital of SMEs and help strengthen the business fundamentals thereof, the State shall develop systems for facilitating investment in SMEs, make the tax burden fairer, and take any other necessary measures.
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  [ CHAPTER III ] ADMINISTRATIVE STRUCTURE RELATED TO SMES

Article 25: The State and local public entities shall cooperate each other and shall endeavor to develop an administrative structure and improve the efficiency of its operation in implementing measures for SMEs.
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  [ CHAPTER IV ] SMALL AND MEDIUM ENTERPRISE POLICY-MAKING COUNCIL

(Establishment)

Article 26: The Small and Medium Enterprise Policy-Making Council (hereinafter referred to as the “Council”) has been established in the Ministry of Economy, Trade and Industry.

(Authority)

Article 27: The Council shall, in addition to handling the matters falling within its competence under the provisions of this Law, investigate and deliberate on important matters concerning the enforcement of this Law when requested to give advice by the Minister of Economy, Trade and Industry or the Ministers concerned.
2. The Council may state its opinion to the Minister of Economy, Trade and Industry or the Ministers concerned, with respect to such matters as prescribed in the preceding Subsection.
3. The Council shall, in addition to the matters specified in the preceding two Subsections, handle the matters falling within its competence under the provisions of the Law on the Cooperative Association of Small and Medium Enterprise (Act No. 181 of 1949), the Small and Medium Enterprise Support Law (Act No. 147 of 1963), the Small Enterprise Mutual Relief Projects Law (Act No. 102 of 1965), the Law on the Promotion of Subcontracting Small and Medium Enterprises (Act No. 145 of 1970), the Law on the Promotion of Small and Medium Retail Business (Act No. 101 of 1973), the Law on Securing Business Opportunities for Small and Medium Enterprises by Adjusting the Business Activities of Large Enterprises (Act No. 74 of 1977), the Law Concerning the Promotion of Improvement of Employment Management in Small and Medium Enterprises for Securing Labor Forces and Creating Quality Jobs (Act No. 57 of 1991), the Law Concerning the Promotion of Efficient Distribution Systems in Small and Medium Enterprises (Act No. 65 of 1992), the Law on Supporting Small Industries by Commerce and Industry Association and Chamber of Commerce and Industry (Act No. 51 of 1993), the Temporary Law Concerning Measures for the Promotion of the Creative Business Activities of Small and Medium Enterprises (Act No. 47 of 1995), the Temporary Law Concerning Vitalization of Industrial Agglomeration (Act No. 28 of 1997), the Law Partially Amending Small Enterprise Mutual Relief Projects Law and Small Business Corporation Law (Act No. 147 of 1998), and the Law on Supporting Business Innovation of Small and Medium Enterprises (Act No. 18 of 1999).

(Organization)

Article 28: The Council shall consist of no more than thirty members.
2. The members of the Council shall be appointed by the Minister of Economy, Trade and Industry from among persons of learning and experience with respect to such matters as provided for in Subsection 1 of the preceding Article.
3. The members shall serve part-time.
4. In addition to the members provided for in Subsection 2, Council staff prescribed by Government Ordinance shall be appointed by the Minister of Economy, Trade and Industry.

(Request for Submission of Materials, etc.)

Article 29: The Council may, where it deems it necessary for the performance of its designated duties, request from the heads of the administrative agencies concerned the submission of materials, statements of opinion and explanations, and also other forms of cooperation.

(Delegation Rule)

Article 30: Besides those matters provided for by this Law, any necessary matters relating to the organization and operation of the Council shall be provided for by Government Ordinance.
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