If the two kinds of corporations are to attempt to compete freely in the same arena, the clarification of the structural (systematic legal) differences between their internal reserves is an inescapable issue. Perhaps this is because internal reserves are a typical symbol of the continuity and stability of corporate structures. Whether an entity is a business or educational corporation, if it carries out activities without assistance extinction is, sooner or later, inevitable. In this context, an entity’s internal reserves are an important signifier of whether it will survive and grow.

As shown in Materials 1, educational corporations are subject to three times the protections of business corporations. To be specific, the first protection is the policy of preferential treatment for subsidies to private universities ([4] in Materials 1). The second protection is the exemptions from corporations’ tax, local tax, fixed property tax and a number of other taxes given to educational corporations ([5],[6] in Materials 1). The third protection is the existence of preferential regulations allowing the appropriation of large internal reserves through the accounting standards for educational corporations ([2],[3] in Materials 1).

I call this the "educational corporation aristocracy". Article 14 of the Constitution applies not only to natural persons but also to corporations. Whilst equality under the law has been realized for natural persons through numerous laws and regulations, this is incomplete for corporations, particularly within the tax system. The matter has been considered for public-service corporations in general; however reforms have not yet been carried out.

As stated earlier, three foundational regulations produce a wide gap between internal reserves in business corporations compared to educational corporations in terms of amount. As there is no public disclosure of information, accurate calculation of the disparity is impossible; however I consider that educational corporations have several times the internal reserves of business corporations.

What could constitute reasons justifying the gap? Allow me to turn to the criteria for policy value judgments.

[1] From the perspectives of the national and local governments ? current annual expenditure amounts are twice annual revenue levels and the gap between revenue and expenditure increases year by year. The criterion for countermeasures is that the community should cooperate equally in decreasing expenditure and participate equally in increasing revenue. In this respect, educational corporations increase the expenditure of the national and local governments through the favorable regulation of accounting standards for educational corporations and the granting of subsidies and reduce revenue through tax exemption privileges.

[2] From the perspective of the national economy ?the post-Cold War world has rushed into capitalism and even in Japan we have done our utmost to do away with our former socialist societal systems (of which government-controlled markets are a typical example), privatising whatever can be privatized, reconstructing efficient societal systems (small government and administrative management), the idea behind our structural and regulatory reforms being to create a Japan capable of dealing with the economic development of the countries of Asia, particularly China.

[3] In terms of measures ? in the context of the global era of the 21st century these are the structural reform route of the Koizumi Cabinet and the Council for Regulatory Reform. In terms of urgent issues, historical efforts are underway to test markets as a means for opening up government-controlled markets.

Reserves can be accounted for in the following main ways.

(1)Where the university concerned (“University A”) reduces its tuition fees below those of other universities (in this instance, company-run universities)

This constitutes an advantage enjoyed only by a specific class of people (students of University A) through sacrifices made by taxpayers in general. Some of the students at University A would be well-off. Is it necessary for the tuition fees of these students to be reduced through sacrifices of the community at large? Reduction in the tuition fees of only those students in economic need could be appropriately achieved through an expansion of the scholarship system.

(2)Where reserves are used to improve the facilities of University A, such as buildings and library collections and lecturers’ teaching and research funding and salaries

This use is the same as in company-run universities and a particular reason for demanding equal funding.

(3)Where reserves are used to increase the remuneration of directors and other executive officers.

(1)Rights to claim residual assets as the deciding factor

The distinction commonly accepted legal distinction between profit-making and non-profit organizations is made according to whether profits are distributed and I have no objection to this approach. The theoretical definition of profit distribution is the distribution of profits carried out in each accounting period by a continuously operating enterprise and, for enterprises for which periodic profit distribution is not prescribed, the liquidation of residual assets on dissolution also equates to profit distribution. Organizations are always subject to this duty to liquidate assets on dissolution (with exceptions such as in the case of mergers) and the right to claim the residual assets is a fundamental right (inherent right) of investors. The commonly accepted theory is that if the right to claim residual assets is prescribed by law, the organization can be said to be a profit-making organization.

Article 30 Paragraph 1 Item 9 of the Law for the Promotion and Subsidization of Private Schools lays down provisions on dissolution and Paragraph 3 states that;

Where provisions are established, amongst the matters listed in Paragraph 1 Item 9, in relation to persons to whom residual assets are to revert, it must be made mandatory for the persons to be selected from educational corporations and other persons carrying out educational enterprises.

Article 51 Paragraph 1 of the Law states that;

The residual assets of dissolved educational corporations shall, except for cases of merger or bankruptcy, revert to the persons to whom residual assets are to revert at the time of notification of completion of liquidation to the competent authorities, pursuant to the provisions of the Act of Endowment.

Since private educational corporations are all incorporated foundations they have Acts of Endowment. Acts of Endowment have the same legal nature as Articles of Association for incorporated associations, in that they are established by the founders themselves. It follows that the right to claim residual assets is prescribed by law even for private educational corporations and that since provision can be made for reversion to donors (who are equivalent to investors), these corporations are no different to business corporations. Accordingly, in terms of theory, private educational corporations can also be defined as profit-making organizations.

Reference can also be made to the handling of medical corporations, which are subject to similar provisions.

（2）Note the Case of Medical Corporations

Article 55 Paragraph 1 Item 1 of the Medical Corporations Law establishes that incorporated medical corporations may prescribe reasons for dissolution in their Articles of Association and Article 56 Paragraph 1, which concerns the reversion of residual assets of incorporated medical corporations, provides that, except for a prohibition on distribution of end-of-year surpluses in Article 54;

Residual assets shall, except for in cases of merger or bankruptcy, revert to the persons to whom they are to revert pursuant to the provisions of the Articles of Association or Act of Endowment.

To be specific, for medical corporations that have investors, if the Articles of Association (a contract to which the investors have agreed) prescribes to whom residual assets will be paid, it is acceptable for those persons to receive dividends (here residual assets). It is for this reason that the Corporations Tax Law prescribes that these medical corporations are to pay the same rate of corporations tax as business corporations (although there is also a reduced tax rate). In other words, they are regarded as business corporations. If this is the case, then reasoning from principle of equality under the law, consideration should be given to revising various legislation so that private educational corporations, which are subject to the same kind of regulations as medical corporations, bear a duty to pay the same rate of corporations’ tax as companies.

（3）Persons to whom Residual Assets Revert

I would like to turn to the theory that “if educational corporations are dissolved and cease involvement in educational enterprises the residual assets do not revert to those who made endowments.” Article 30 Paragraph 3 of the Private Schools Law prescribes that:

Where provisions are established...in relation to persons to whom residual assets are to revert, it must be made mandatory for the persons to be selected from educational corporations and other persons carrying out educational enterprises.

The legal expression “A and other B” is used when A and B are different in nature. It follows that the phrase “educational corporations and other persons carrying out educational enterprises” means “educational corporations and persons who are not educational corporations that carry out educational enterprises. Since if educational corporations are non-profit, it is conceivable that the persons who are not educational corporations would be profit-making, the logical interpretation of the phrase is “non-profit or profit-making persons carrying out educational enterprises”. If this is the case then in terms of legal theory, even if persons making endowments when an educational corporations is established are persons “carrying out an educational enterprise” for profit, it is permissible to prescribe these individual persons as persons to whom residual assets are to revert.

The phrase “it must be made mandatory for the persons to be selected” in this paragraph is a provision that does not exclude the listing of the names of specific individuals. Article 11 of the Non-Profit Organizations Law states that:

Where provisions in relation to persons to whom residual assets are to revert are prescribed (in the Articles of Association), it shall be mandatory for the persons to be selected from specific corporations engaged in non-profit activities or other persons listed as follows.

Yet the listing of the names of specific non-profit organizations is encouraged. This practice is appropriate as it is better to specify in order to prevent disputes on dissolution.

The freedom to establish and dissolve corporations is, in the first place, central to the principle of freedom of contract in the Civil Code (known as the principles of the freedoms to establish and dissolve corporations; the embodiment of the principle of personal autonomy). If there is freedom to establish corporations then there must also be freedom to dissolve corporations under the same conditions. If this is not the case then once a person has established a corporation they will become unable to withdraw from the same, resulting in harm to personal autonomy. Articles 30 Paragraph 3 and 51 Paragraph 1 of the Private School Law are appropriate provisions from this perspective.

As there are cases where permission is required for the dissolution in Article 50, some might point out that where the founders have been made the persons to whom the residual assets are to revert, this permission may not be given. However, since where "a reason for dissolution prescribed in the Act of Endowment have arisen" (Article 50 Paragraph 1 Item 2), all that is needed is a notification of that fact, permission is not necessarily required (see Article 50 Paragraph 4). To illustrate, if provision is made for reasons for dissolution such as "where the number of applications from prospective students is in continual decline and all places have not been filled for 3 or more years in succession due to the declining birth rate" then this will equate to "a reason for dissolution prescribed in the Act of Endowment hav(ing) arisen”. It is quite possible that since the declining birth rate is very foreseeable, prudent founders will make such provision in the Act of Endowment in order to prevent disputes amongst the directors as to whether to continue with the school. Further, even where there are other reasons on which dissolution is based, “permission” differs from freely determined approval in that if certain conditions are met, permission must be given. It follows that even dissolution where the founders have been designated as the persons to whom residual assets are to revert, if the dissolution is based on the Act of Endowment, permission should be given.

As explained above the theory that, since it is conceivable that residual assets would belong to the persons who make endowments, “if educational corporations are dissolved and cease involvement in educational enterprises the residual assets do not revert to those who made endowments" is flawed in terms of legal theory.