Incorporating a business in Japan: The Godo Kaisha

A godo kaisha or “GK” (合同会社), which some people call a Japanese LLC, is probably better described as a sort of hybrid between a corporation and a partnership. It came into existence in May 2006 with the abolition of the incorporation of new yugen kaisha (有限会社) type companies.

Company Structure

A GK is made up of members (社員, shain), each of whom must invest at least one yen into the company. You can think of these people as the “shareholders” of the company. Management and executive decisions of the GK are made by managing members (業務執行社員, gyomu shikko shain) who are selected from amongst the regular members. These managing members would be something similar to a director in a stock company.

One or more representative members (代表社員, daihyo shain) are selected from amongst the managing members with the power to legally bind the company. For those familiar with a Japanese stock company (株式会社, kabushiki kaisha), a representative member would be similar in function to a representative director. It is not necessary for any of the representative members to be a resident of Japan. However, it will likely make the incorporation much smoother. A “resident of Japan” is anyone who has a legal status of residence in Japan (valid visa) and does not necessarily have to be a Japanese citizen.

It is not necessary for any of the representative members to be a resident of Japan

Whilst in a stock company there can be a separation between a shareholder and a director, in a GK, all “directors” (managing members) must also be a “shareholder” (member).

Voting and Profit Sharing

“Shareholder” voting is handled quite differently in a GK and stock company. While in a stock company, shareholders have votes in proportion to how much they invested in the company, in a GK all members in principle are treated equally for voting (one member, one vote) regardless of the amount invested. Similarly, by stating so in the Articles of Incorporation, profit distribution by a GK can be freely specified instead of being dependent on the proportion invested by each member.

This type of flexibility makes the GK a good choice for a small group of individuals who are closely involved in the operations of the business. However, for those hoping to attract outside capital investment, the "one member, one vote" structure may not be desirable to investors seeking voting rights and profit distributions in relation to the amount which they have invested. For such individuals a KK may be an easier sell to investors.

Setup and Running Costs

The GK is popular these days because of its lower setup costs and registration taxes. As with all Japanese entity types, a GK requires that you can provide an address in Japan to register as the company registered address. (Note that if you are not a resident of Japan and intend to use the GK to sponsor your own Business Manager visa, the company will need to be registered at an actual office property, per my previous article).

Also, there is no concept of a term of office in a GK, so other than filing taxes and the fees charged by your accountant, essentially there are no legal running costs.

One Yen?

According to the Companies Act, each member must invest at least one yen in the company. Since a GK can be incorporated with just one member, it means that you can make a “one yen” GK. But is there really a benefit to doing so?

If your only focus is to incorporate a company, there’s no problem. But with such a minimal amount of capital, in other words limited amount of available operational funds, you might find it difficult to actually run your business, so you’ll want to give this thought when incorporating your company. “One yen” is simply the minimum legal registered capital and obviously that is not enough to actually “run” a business. It is possible to increase the registered capital at a later date, but this will incur legal fees and Government Taxes.

Other Issues

The GK, because it is a relatively new type of entity, is probably less recognized in society in general, and it may make sense for some to incorporate a stock company instead. However, this is changing and we are seeing more large Companies using the GK structure in Japan. If you want to operate your business through a corporate entity and your customers and transaction partners are not concerned about the entity type they are dealing with, the GK is a perfectly viable choice. You can of course apply for business permits and use a GK to sponsor visas.

If you would like further information about the GK, you may like to contact a shihoshoshi (司法書士), a type of Japanese legal professional who specialises in corporate registrations.