Under Japanese law, there are four types of companies: Kabushiki Kaisha(a joint stock company, C-corporation), Gome Kaisha(a general partnership company), Goshi Kaisha(a limited partnership company), and Godo Kaisha(a limited liability company). Among them, Godo Kaisha is a new company type introduced through the revision of the Company Act in 2006. It is modeled after the Limited Liability Company (LLC) in the United States.
Like US LLC, a Godo Kaisha has the same corporate protection and limited liability as a stock company. The incorporation of a Godo Kaisha is much simpler and faster than a stock company. However, Godo Kaisha under Japanese tax laws cannot enjoy pass-through taxation, which is a big difference from the LLC. Also, unlike US LLC, the capital contribution cannot be made in the form of services. Only cash and other property are allowed. (There is no minimum amount of initial capital)
Global companies like Apple, Google, and Amazon use Godo Kaisha as their legal entities for Japanese subsidiaries.
Here are some highlights of why foreign entrepreneurs prefer a Godo Kaisha over a stock company.
- Members can freely determine each member’s voting rights and profit participation even if it is not in proportion to the amount of investment.
- Members manage the company. So it doesn’t require shareholders’ meetings and minutes are not required. No need for a board of directors and minutes, either. This makes decision-making faster and operating costs lower.
- Members typically appoint a managing member or a representative member.
- There is no statutory fixed term for the managing member and the representative member.
- The incorporation cost is lower than a stock company. (Godo Kaisha costs about 60,000 Yen, whereas a stock company costs around 200,000 Yen)
- Godo Kaisha is not required to appoint an auditor.
- Godo Kaisha doesn’t need to announce the annual report.
There are, however, some points that need attention from foreign investors.
As explained already, unlike LLC, Godo Kaisha cannot enjoy the pass-through taxation in Japan. It should pay the Japanese income tax at the corporate level and again the member should pay the Japanese personal income tax. Foreign investors must review whether the Godo Kaisha structure could fit in their global tax planning.
Under Japanese law, an expulsion of any member, i.e. forced dissociation, is only possible when the court approves it. Also in order to dismiss a managing member or a representative member, a just cause is required. Dismissal at will is not allowed unless the dismissed member agrees.
Also, a Godo Kaisha is s relatively a new type of company in Japan and has less social recognition than a stock company. This could be the reason for Japanese entrepreneurs who are not familiar with the Godo Kaisha to hesitate to make a deal and transaction with a Godo Kaisha.
| Kabushiki Kaisha (Stock Company) | Godo Kaisha (Limited Liability Company) | |
| Capital | 1 yen or more | 1 yen or more |
| Number of investors | 1 or more | 1 or more |
| Personal Liability | Shareholders are not personally liable for the debts of the company. | Members are not personally liable for the debts of the company. |
| Transferability of Interests | No restriction except the company may require prior consent of the company. | Restricted, requires approval of every member. But operating agreements may set differently |
| Formalities of Decision Making | Resolution by the Shareholder’s meeting | Formal meetings and minutes are not required. |
| Voting Right | Pro rata rule | Per capita rule, but the operating agreement may set differently regarding the management decision |
| Management and Operation | Managed by the directors appointed by the shareholders | Managed by the managing members appointed among and by the members |
| Company Representation | Representative Director | Representative Member appointed among the managing members |
| Number of Auditors | 1 or more | None |
| Profit Distribution | In proportion to the investment | Special allocation permitted |
| Public Announcement of Annual Report | Required | Not required |
| Pass-Through Tax Treatment | No | No |
A Godo Kaisha, a Japanese equivalent of a US LLC, is a highly customizable and flexible entity that is suitable for startups and foreign parent companies planning to establish a Japanese subsidiary.
If you need legal assistance in choosing the right type of business structure for your Japanese startup or a Japanese subsidiary, our team of Japanese business lawyers can help you. Please reach out to us by clicking here and let’s get started from there.
© 2022 All rights reserved.
JAPAN IN LAW 