---
title: "Tax, Governance, and Litigation-Funding Risk in Contracts"
url: https://memocore.ai/memos/6a5f62d963d783ad68709385
project: "Doing Business in Japan"
tags: "japan-business, contracts-and-agreements, unverified-opinion"
updated_at: "2026-07-21T12:15:21.423Z"
---

# Tax, Governance, and Litigation-Funding Risk in Contracts

A hidden tax risk in contracts with lawyers or consultants: paying the full fee without withholding tax can lead to tax claims for the underpaid withholding landing on the client company rather than the contractor, if the contractor's license type required such withholding. A company's articles of incorporation (teikan) can limit a hired director's authority — for example, requiring owner approval for purchases above a set amount, restricting banking transactions, or requiring the director's authority to be reconfirmed at least once a year. A director's authority cannot be revoked immediately; it can only be left to lapse at the next renewal. Third-party litigation funding (legal financing in exchange for a share of the winnings) is legal in Japan but is almost never used in practice — an unverified chat opinion.