What a medical corporation is: clinics can incorporate too
Article 39 of the Medical Care Act provides that a society or foundation that intends to operate a hospital, a clinic where a physician or dentist is constantly on duty, a geriatric health facility or a long-term care medical facility may be made a corporation under the Act, and that such a corporation is called a "medical corporation." A clinic with a full-time physician or dentist can therefore be incorporated.
A medical corporation cannot be established without approval from the prefectural governor where its principal office is located (Article 44, paragraph 1). The MHLW's medical corporation page likewise directs applicants to the prefecture of the principal office for establishment approval and notification procedures.
New corporations are "no-equity-interest" corporations
According to the MHLW's medical corporation type chart (organized as of April 2007), only new-law medical corporations can be established from April 2007 onward; old-law "transitional" corporations with equity interests can no longer be established. For a newly established "other medical corporation," an association-type corporation may use the fund system. How existing corporations with equity interests are treated, including conversion, is a separate issue and is not covered here.
The big picture: what changes after incorporation
| Item | Rule | Basis |
|---|---|---|
| Establishment | Approval by the prefectural governor | Art. 44 |
| Bodies | An association-type corporation has a members' meeting, directors, a board of directors and an auditor | Art. 46-2 |
| Directors / auditors | At least 3 directors and 1 auditor (1–2 directors with governor approval) | Art. 46-5(1) |
| Chair | Elected from physician or dentist directors (exceptions with approval) | Art. 46-6 |
| Profits | Dividends of surplus are prohibited | Art. 54 |
| Accounts | Business report and related documents within 2 months after fiscal year-end | Art. 51 |
| Articles of incorporation | Members' meeting resolution; governor approval in principle (notification only for items set by ministerial order) | Art. 54-9 |
Officers and bodies: who decides what
Number and eligibility of directors and auditors
A medical corporation must have at least three directors and one auditor. However, with the governor's approval, one or two directors are sufficient (Article 46-5, paragraph 1). Where there is a single director, that director is deemed the chair (Article 46-6, paragraph 2).
Other key rules:
- Officers of an association-type corporation are elected by resolution of the members' meeting (Art. 46-5, para. 2)
- The administrator of every hospital or clinic the corporation operates must be a director (Art. 46-5, para. 6; with the governor's approval, some administrators may be excluded when there are multiple facilities)
- A director who leaves the administrator's post loses the directorship (para. 7)
- An auditor may not also be a director or an employee of the corporation (para. 8)
- An officer's term may not exceed two years; reappointment is allowed (para. 9)
The chair's requirements and authority
One director serves as the chair and is elected from among the directors who are physicians or dentists. With the governor's approval, the chair may instead be chosen from directors who are not physicians or dentists (Article 46-6, paragraph 1). The chair represents the corporation and has authority over all judicial and extrajudicial acts relating to its business (Article 46-6-2).
What the board of directors decides
The board consists of all directors and decides business execution, supervises directors' performance and elects or removes the chair. Disposal or acquisition of important assets, large borrowings, appointment or dismissal of key staff, and the establishment, change or abolition of branch offices and other important organizations cannot be delegated to individual directors (Article 46-7).
Matters a sole proprietor decided alone may become board matters in a corporation—for example, borrowing for a new branch or major equipment should be treated as a board decision.
The MHLW's Medical Corporation Operation and Management Guidance Outline lists checks such as:
| Check item | Outline |
|---|---|
| Chair's report | The chair reports on the execution of duties to the board at least once every three months (unless the articles provide for two or more reports at intervals of up to four months per fiscal year) |
| Conflict-of-interest transactions | A director entering a conflict-of-interest transaction must disclose material facts and obtain board approval, and report promptly afterward |
| Auditors | Must not hold another post such as director or employee, nor be a person with a special relationship (e.g., relative) to other officers |
Money rules: no dividends
Dividends of surplus are prohibited (Article 54). The Outline requires that anything resembling a dividend be treated the same way and notes that violations are subject to a non-penal fine of up to 200,000 yen (Medical Care Act Article 93, item 7, as cited in the Outline).
Unlike a sole proprietorship, where profit is the director's own, the assets of a medical corporation are meant to be used to provide medical care. Officer compensation and transactions with related parties are subject to disclosure in the documents described below.
Asset requirement
A medical corporation must hold the assets necessary for its business (Article 41). Article 30-34 of the Enforcement Regulations requires it to hold the facilities, equipment or funds necessary to run the hospitals or clinics it operates. Reference amounts and review methods are set out in each prefecture's guidance, so confirm figures with the prefectural office.
Financial statements and disclosure
Within two months after each fiscal year-end, a medical corporation must prepare a business report, an inventory of property, a balance sheet, a profit-and-loss statement and a report on transactions with related parties. These are audited by an auditor and approved by the board. The balance sheet and income statement must be kept for ten years (Article 51).
Beyond a sole proprietor's tax return, a corporation needs a system to prepare these documents every year (an accounting lead, a tax accountant, accounting software); this is the core of post-incorporation running cost.
Scope of business: what a corporation may do
Provided it does not interfere with its clinics' operations, and as set out in its articles, a medical corporation may carry out the following (Article 42):
- Training or retraining of medical personnel
- Establishing medical research institutes
- Opening clinics other than those described in Article 39 (for example, clinics without a resident physician)
- Public health and hygiene work
- Certain social welfare and elderly welfare projects designated by the Minister of Health, Labour and Welfare
If you plan branches or expansion into care and welfare, those activities must be written into the articles. Amending the articles requires a members' meeting resolution and, in principle, the governor's approval (notification only for items set by ministerial order) (Article 54-9).
Moving from a sole-proprietor clinic: what to confirm
The Act distinguishes how a clinic is opened. A physician who opens a clinic must notify the governor within 10 days after opening (Article 8, paragraph 1), whereas a person who is not a physician or dentist who intends to open a clinic needs the permission of the governor of the location (Article 7, paragraph 1). A corporation is not an individual physician, so a clinic opened by a corporation requires permission—a key difference from individual opening.
In practice, confirm the following early; procedures, deadlines and documents vary by municipality and regional bureau:
- Closing the individual clinic and obtaining permission to open as a corporation (public health center)
- Designation as an insured medical institution (changes when the operator changes; regional bureau of health and welfare)
- Application schedule for corporate approval (some prefectures accept applications only at set times)
- Contract names (lease, equipment, EMR and billing-software licenses)
- Handover of patient records (see also How Clinic Succession Works)
Pre-incorporation checklist
- Have you put the purpose (branches, succession, hiring and credibility, financing) into words?
- Who will serve as 3+ directors and 1+ auditor (have you checked the family/employee dual-role limits, and whether approval is needed for 1–2 directors)?
- Who will be the chair (physician or dentist), and will the clinic administrator be a director?
- Do you understand that dividends are prohibited, and have you reviewed officer compensation with your tax accountant?
- Can you prepare the business report and related documents within two months after year-end?
- Have you set internal rules for matters needing board resolution (large borrowing, branch establishment)?
- Have you confirmed application timing, required assets and documents with your prefecture?
- Have you listed contract-name changes for EMR, billing, reservation and other systems?
FAQ
Q. Can profits be distributed to investors in a medical corporation?
A. No. Article 54 of the Medical Care Act prohibits dividends of surplus.
Q. How many directors are required?
A. In principle, at least three directors and one auditor. With the governor's approval, one or two directors suffice (Article 46-5).
Q. Must the chair be a physician?
A. In principle the chair is elected from physician or dentist directors; with the governor's approval another director may be chosen (Article 46-6).
Q. Is there a set timing or a tax advantage to incorporating?
A. This article does not judge that. Tax and social insurance effects depend on individual circumstances; consult your tax accountant or labor and social security attorney.
Summary
- A medical corporation is established with the prefectural governor's approval; a clinic qualifies if a physician or dentist is constantly on duty
- In principle 3+ directors and 1+ auditor; the chair is in principle a physician or dentist; an auditor cannot also be a director or employee
- Dividends are prohibited; financial documents are due within two months after year-end, with auditor review and board approval
- Matters a sole proprietor decided alone, such as branch openings or large borrowing, become board matters
- Leave the cost-benefit judgment to your tax and labor specialists, and confirm procedures with the prefectural office
For branch expansion and system integration, see Multi-Site Clinic System Design; for the overall opening flow, Preparing to Open an Internal Medicine Clinic; and for reading numbers after incorporation, Ten Management Metrics Every Clinic Should Track. Using billing and EMR data for management analysis is covered in Management Analytics with Billing and EMR Data.
Contact Pottech
Pottech provides AI-native EMR integrated with billing software for clinics. If you need help with contract-name changes at incorporation, multi-site operations, or making management data visible, please contact us.
References
- e-Gov Law Search, Medical Care Act (Act No. 205 of 1948), Articles 7, 8, 39, 41, 42, 44, 46-2, 46-5, 46-6, 46-6-2, 46-7, 51, 54, 54-9 (version effective 2026-10-01, checked 2026-11-08)
- e-Gov Law Search, Enforcement Regulations of the Medical Care Act (MHW Ordinance No. 50 of 1948), Article 30-34
- Ministry of Health, Labour and Welfare, "Medical Corporation Operation and Management Guidance Outline" (attachment)
- Ministry of Health, Labour and Welfare, "Medical corporation types" (transition of medical corporations under the revised Act)
- Ministry of Health, Labour and Welfare, medical corporation and medical business management web page