What is a "Social Welfare Corporation" (Shakai Fukushi Hojin) in Japan and Why Might It Matter for International Entities?

Japanese Attorney at Law - Bengoshi L.L.

21 May 2025 • 9 min read

Japan's legal landscape features a variety of corporate and non-profit structures, each designed for specific purposes and subject to distinct regulatory frameworks. Among these, the "Shakai Fukushi Hojin" (社会福祉法人), or Social Welfare Corporation, holds a unique and significant position, particularly in the delivery of a wide array of social services. Understanding this entity is crucial for any international organization looking to engage with Japan's social sector, whether for philanthropic endeavors, service provision, or strategic partnerships.

A Social Welfare Corporation (SWF) is a juridical person established under the Social Welfare Act (Shakai Fukushi Hō, Act No. 45 of 1951) with the express purpose of conducting "social welfare services" (shakai fukushi jigyō). The overarching goal of the Social Welfare Act itself is to provide common basic matters across all fields of social welfare, working in concert with other welfare-related laws to protect the interests of service users, promote community welfare, ensure the fair and appropriate implementation of social welfare services, and foster the sound development of such services, thereby contributing to the enhancement of social welfare.

Unlike general non-profit organizations or standard business corporations, SWFs are subject to stringent oversight by supervisory government authorities (known as "Shokatsu-cho") and must adhere to specific operational and governance principles. Their establishment requires not only the creation of Articles of Incorporation (Teikan) by founders and the securing of necessary assets to conduct social welfare services, but also the approval of these Articles by the relevant supervisory authority. Legal personality is acquired upon registration of establishment.

The Social Welfare Act categorizes social welfare services into two main types: First-Class Social Welfare Services and Second-Class Social Welfare Services. This distinction is critical as it often dictates who can provide such services and the level of regulatory scrutiny involved.

First-Class Social Welfare Services are generally characterized by their intensive nature, often involving residential care or significant, ongoing support for vulnerable populations. Due to their impact and the need for stable, continuous provision, these services are typically restricted to national and local governments and, most prominently, Social Welfare Corporations.

Examples of First-Class Social Welfare Services, as outlined in Article 2, Paragraph 2 of the Social Welfare Act, include:

Operation of relief facilities (Kyūgo Shisetsu), rehabilitation facilities (Kōsei Shisetsu), and other facilities aimed at admitting persons with financial difficulties free of charge or at low cost to provide living assistance, as well as conducting funeral assistance for such individuals.
Operation of infant homes (Nyūji-in), maternal and child living support facilities (Boshi Seikatsu Shien Shisetsu), children's nursing homes (Jidō Yōgo Shisetsu), residential support facilities for children with disabilities (Shōgaiji Nyūsho Shisetsu), children's psychological treatment facilities (Jidō Shinri Chiryō Shisetsu), or children's self-reliance support facilities (Jidō Jiritsu Shien Shisetsu) under the Child Welfare Act.
Operation of nursing homes for the elderly (Yōgo Rōjin Hōmu), special nursing homes for the elderly (Tokubetsu Yōgo Rōjin Hōmu), or low-cost homes for the elderly (Keihi Rōjin Hōmu) under the Elderly Welfare Act.
Operation of support facilities for persons with disabilities (Shōgaisha Shien Shisetsu) under the Act on Comprehensive Support for Persons with Disabilities.
Operation of women's protective facilities (Fujin Hogo Shisetsu) under the Prostitution Prevention Act.
Operation of sheltered workshops (Jusan Shisetsu) and businesses providing interest-free or low-interest loans to persons with financial difficulties.

The provision of these services demands a high degree of responsibility and resource stability, which is why SWFs are central to their delivery.

Second-Class Social Welfare Services are generally more diverse and may be less intensive or non-residential compared to First-Class services. While SWFs are major providers, other entities may also engage in these services, subject to relevant regulations.

Examples of Second-Class Social Welfare Services, as detailed in Article 2, Paragraph 3 of the Social Welfare Act, include:

Services providing daily necessities (food, clothing), financial aid for such necessities, or lifestyle consultation at the homes of persons with financial difficulties.
Certified employment training services for persons in need of self-support (Nintei Seikatsu Konkyūsha Shūrō Kunren Jigyō) under the Act on Self-Support for Persons in Need.
A wide range of services under the Child Welfare Act, such as daycare support for children with disabilities (Shōgaiji Tsūsho Shien Jigyō), consultation support for children with disabilities (Shōgaiji Sōdan Shien Jigyō), independent living support for children (Jidō Jiritsu Seikatsu Enjo Jigyō), after-school programs for healthy child development (Hōkago Jidō Kenzen Ikusei Jigyō), short-term childcare support (Kosodate Tanki Shien Jigyō), operation of midwifery homes (Josan Shisetsu), nursery schools (Hoikusho), children's recreational facilities (Jidō Kōsei Shisetsu), or child and family support centers (Jidō Katei Shien Sentā), and child welfare consultation.
Operation of integrated early childhood education and care centers (Yōho Renkei-gata Nintei Kodomo-en).
Services under the Mother and Child and Father and Child Welfare Act, such as daily living support for single-mother families (Boshi Katei-tō Nichijō Seikatsu Shien Jigyō) and operation of related welfare facilities.
Various elderly welfare services like in-home care (Rōjin Kyotaku Kaigo-tō Jigyō), day services (Rōjin Dei Sābisu Jigyō), short-stay services (Rōjin Tanki Nyūsho Jigyō), and operation of related centers.
Disability welfare services such as support for daily and social life (Shōgai Fukushi Sābisu Jigyō), consultation support (Sōdan Shien Jigyō), and operation of community activity support centers (Chiiki Katsudō Shien Sentā).
Services for persons with physical disabilities including rehabilitation training (Shintai Shōgaisha Seikatsu Kunren-tō Jigyō), sign language interpretation (Shuwa Tsūyaku Jigyō), and operation of guide dog training facilities.
Rehabilitation consultation for persons with intellectual disabilities.
Providing low-cost rental housing or lodging for those with financial difficulties.
Providing free or low-cost medical treatment for those with financial difficulties.
Neighborhood improvement projects (Rinpo Jigyō) involving setting up facilities for community use at free or low cost.
Welfare service utilization assistance projects (Fukushi Sābisu Riyō Enjo Jigyō) for those who have difficulty managing daily life due to mental reasons.

The Social Welfare Act also clarifies certain activities that do not fall under the definition of social welfare services. These exclusions, found in Article 2, Paragraph 4, help to delineate the scope of SWF operations. Examples include:

Offenders rehabilitation services under the Offenders Rehabilitation Services Act.
Projects with an implementation period not exceeding six months (or three months for certain listed services).
Services conducted by associations or unions solely for their members.
First-Class and most Second-Class services where the number of regular beneficiaries is very small (e.g., fewer than 5 for residential care, fewer than 20 for others, with some exceptions for 10).
Certain grant-making activities under Second-Class services if the annual grant amount is below a certain threshold (e.g., 5 million yen).

III. Establishment and Operational Principles

The establishment and operation of an SWF are guided by specific legal requirements and foundational principles aimed at ensuring their public benefit nature and accountability.

A. Establishment Process Overview

As briefly mentioned, establishing an SWF involves several key steps:

Founders Prepare Articles of Incorporation (Teikan): This document outlines the fundamental rules and structure of the SWF.
Secure Necessary Assets: SWFs must possess assets sufficient to carry out their intended social welfare services. This often involves donations or endowments by the founders.
Obtain Approval from Supervisory Authority (Shokatsu-cho): The Articles of Incorporation must be submitted to and approved by the relevant government agency (e.g., prefectural governor, designated city mayor, or the Minister of Health, Labour and Welfare, depending on the scope of operations).
Registration: Upon approval, the SWF must be registered. It is this act of registration that formally grants the SWF its legal personality.

B. Core Management Principles (Keiei Gensoku)

Article 24 of the Social Welfare Act lays down crucial management principles for SWFs:

SWFs must, as principal actors in social welfare, conduct their services reliably, effectively, and appropriately. They must independently strive to strengthen their management foundation.
They are obligated to improve the quality of the welfare services they provide and ensure transparency in their business operations.
Furthermore, when conducting social welfare services and public interest activities, SWFs must endeavor to actively provide welfare services free of charge or at low cost to those who require support in their daily or social lives.

These principles underscore the public trust vested in SWFs and their responsibility to serve the community.

IV. Permissible Ancillary Activities

While the core mission of an SWF is to provide social welfare services, the Social Welfare Act allows them to engage in other activities under certain conditions, provided these do not hinder their primary social welfare operations.

A. Public Interest Activities (Kōeki Jigyō)

SWFs can conduct "public interest activities". These are often services that, while beneficial to the public, might be smaller in scale than their main social welfare services, or utilize existing facilities and expertise. Examples include certain types of home-care services under the Long-Term Care Insurance Act or operating training facilities for social workers or care workers. The Social Welfare Act Enforcement Ordinance (Shakai Fukushi Hō Shikōrei) provides further details on what qualifies.

B. Profit-Making Activities (Shūeki Jigyō)

SWFs may also undertake "profit-making activities." However, a critical stipulation is that any profits generated from these activities must be allocated to the SWF's social welfare services or its public interest activities. This ensures that even commercial endeavors ultimately serve the SWF's non-profit mission.

C. Accounting Segregation

To maintain financial clarity and ensure that ancillary activities support the core mission, Article 26, Paragraph 2 of the Social Welfare Act mandates that the accounts for public interest activities and profit-making activities must be kept separate from the accounts for the SWF's main social welfare services, typically as special accounts.

V. The 2017 Legal Reforms and Their Impact

A significant development in the regulation of SWFs was the "Act to Amend Part of the Social Welfare Act, etc." (Act No. 21 of 2016), with most key provisions concerning governance and transparency taking effect on April 1, 2017. These reforms were aimed at enhancing the public trust in SWFs and ensuring they operate with greater accountability.

The main objectives of these reforms included:

Strengthening Governance: Referred to as "Review of Management Organization" (Keiei Soshiki no Minaoshi), this involved clarifying and enhancing the roles and responsibilities of key organs within SWFs.
Enhancing Operational Transparency: Known as "Improvement of Transparency in Business Operations" (Jigyō Unei no Tōmeisei no Kōjō), this focused on increasing the public availability of information about SWF finances and activities.
Ensuring Appropriate Use of Retained Earnings: Addressing concerns about how SWFs manage and utilize any surplus funds.
Fulfilling Community Responsibilities: Reinforcing the role of SWFs in contributing to their local communities.

Specific changes brought about by these reforms included:

Clarification of Mandatory Organs: The law explicitly mandates that SWFs must have Councillors (Hyōgiin), a Councillor Council (Hyōgiinkai), Directors (Riji), a Board of Directors (Rijikai), and Auditors (Kanji). Depending on their scale (e.g., revenue exceeding 3 billion yen or liabilities over 6 billion yen), an Accounting Auditor (Kaikei Kansanin) also became mandatory for certain "Specified Social Welfare Corporations" from the conclusion of the first regular councillor council meeting convened after the amendment's effective date.
Enhanced Requirements for Articles of Incorporation: The Teikan must now include detailed provisions concerning these governance bodies.
Increased Public Disclosure Obligations: SWFs are required to publicly disclose documents such as their Articles of Incorporation, financial statements, and lists of officers and councillors.

The phased implementation saw some provisions take effect on the date of promulgation (March 31, 2016) or April 1, 2016, but the majority, especially those related to governance structures and transparency, became effective on April 1, 2017.

VI. Why Might Shakai Fukushi Hojin Matter to International Entities?

While SWFs are domestic Japanese entities, their role and the services they provide can be of relevance to international organizations in several ways:

Partnership Opportunities: Foreign non-profit organizations or the corporate social responsibility (CSR) arms of multinational companies looking to implement or support social welfare initiatives in Japan may find SWFs to be essential local partners. SWFs possess the local knowledge, infrastructure, and regulatory approvals necessary to deliver services effectively.
Service Provision and Market Entry: Companies operating in sectors such as elder care technology, assistive devices, childcare educational tools, or healthcare support services might identify SWFs as significant clients or key channels to the Japanese market. SWFs often operate large-scale facilities and community programs that require a wide range of goods and services.
Social Impact Investment and Philanthropy: For entities focused on social impact investing or those wishing to direct philanthropic funds towards Japanese social causes, SWFs represent established, regulated channels for achieving social welfare outcomes. Understanding their governance and financial transparency (enhanced by the 2017 reforms) is key for such engagements.
Understanding the Regulatory and Competitive Landscape: Businesses offering services in sectors where SWFs are prominent (e.g., nursing care, childcare) need to understand the unique operational environment, funding mechanisms (which often involve public subsidies and long-term care insurance), and regulatory obligations of SWFs to navigate the market effectively.
Due Diligence: In scenarios involving mergers, acquisitions, or significant partnerships with Japanese entities that have existing relationships or contracts with SWFs, a thorough understanding of the nature, obligations, and stability of these SWFs can be a critical component of due diligence.
Recruitment and Human Resources: SWFs are major employers in the social welfare sector. International organizations involved in talent development or recruitment in this field in Japan will inevitably interact with the workforce shaped by SWFs.

Conclusion

The Shakai Fukushi Hojin is a cornerstone of Japan's social welfare system, entrusted with providing essential services to vulnerable populations. Governed by the Social Welfare Act and subject to rigorous oversight, these corporations operate under principles of public benefit, transparency, and community contribution. The 2017 legal reforms further solidified these principles, aiming to ensure that SWFs continue to meet the evolving needs of Japanese society with accountability and integrity. For international entities, whether in the non-profit, business, or investment spheres, a clear understanding of what SWFs are, the services they provide, and the regulatory environment in which they operate can unlock opportunities for collaboration, market engagement, and impactful social contribution in Japan. Future discussions will delve into the specific registration procedures and governance mechanisms that define their operations.

I. Defining the Shakai Fukushi Hojin (Social Welfare Corporation)

II. The Scope of "Social Welfare Services" (Shakai Fukushi Jigyō)

A. First-Class Social Welfare Services (Dai-isshu Shakai Fukushi Jigyō)

B. Second-Class Social Welfare Services (Dai-nishu Shakai Fukushi Jigyō)

C. Activities Excluded from Social Welfare Services