When establishing a company in Japan, it is necessary to first determine the corporate structure. There are several types of company structures in Japan that can be legally formed as defined in the Companies Act of Japan, and different rules apply for each. In this article we will discuss in detail the different options available, the characteristics of each entity, and the pros and cons of each.
Four types of company structures in Japan
Currently, the following four types of company structures are defined in the Companies Act of Japan:
- Joint Stock Company (株式会社 = Kabushiki Kaisha = KK)
- Limited Liability Company (合同会社 = Godo Kaisha = GK)
- Unlimited Partnership (合名会社 = Gomei Kaisha = GMK)
- Limited Liability Partnership (合資会社 = Goshi Kaisha = GSK)
1. Joint Stock Company: 株式会社 (KK = Kabushiki Kaisha)
The most common choice when establishing a company is a Joint Stock Company.
The basic tenant of a Joint Stock Company is to develop the business by separating the people who invest in and own the company (shareholders), and the people who carry out the management of the company (directors), respectively.
A Joint Stock Company raises funds (capital) necessary for the establishment and operation of the company by issuing shares of stock and having an unspecified number of investors.
Since a Joint Stock Company provides ‘separation of ownership and management’, an investment does not necessarily mean direct involvement in the operation of the company. Shareholders are involved in the company only through the annual shareholders’ meeting, which is usually held once a year, and the company is basically managed by the directors.
Characteristics of a Joint Stock Company (KK)
| Minimum Capital | Possible from 1 yen |
| Minimum Investors | 1 |
| Investors are called | Shareholders |
| Liability for investors | Indirect limited liability |
| Highest decision-making body | General Shareholders Meeting |
| Name of Company Representative | Representative Director (代表取締役 = Daihyo-tori-shimari-yaku) |
| Ability to transfer equity interest | There are basically no limits. However, it is possible to add restrictions in the articles of incorporation. |
Advantages and Disadvantages of a Joint Stock Company
- Raises large amounts of capital from many investors through the issuance of shares
- Suitable for companies with large scale operations
- Widely recognized for its name recognition and credibility.
- Strict rules are in place, including the obligation to publish financial statements.
As shown in the table above, in the case of a Joint Stock Company, the liability of the investors is “indirect limited liability,” which means that even if the company were to go bankrupt, it would only be to the extent of the shareholders’ investment.
2. Limited Liability Company: 合同会社 (GK = Godo Kaisha)
A Limited Liability Company (Godo Kaisha) is a new company structure established by the new Company Law that came into effect on May 1st, 2006. It is considered a Japanese-style LLC because it is modeled after the “LLC” form of business organization in the United States.
In a Limited Liability Company, all persons who have invested the necessary funds for the establishment and operation of the company are treated as members of the company. In other words, those who have invested in the company can participate in the management of the company as well as being investors.
In a Joint Stock Company, the persons who invested in the company (shareholders) and the persons who manage the company (directors) are separated, but in a Limited Liability Company, those who invested in the company can be involved in the management of the company, which is a major difference.
Incidentally, the name recognition of Limited Liability Company itself is on the rise, as even famous companies such as Apple Japan, Amazon, Oracle and Seiyu have established Limited Liability Companies, in addition to their main Joint Stock Company structure.
The Limited Liability Company is the second most popular corporate entity after the Joint Stock Company.
Characteristics of a Limited Liability Company
| Minimum Capital | Possible from 0 yen | |
| Minimum Investors | 1 | |
| Investors are called | employees | |
| Liability for investors | Indirect limited liability | |
| Highest decision-making body | General Employees Meeting | |
| Name of Company Representative | Managing Partner (業務執行社員 = Gyomu-Shikko-Sha-In) | |
| Ability to transfer equity interest | Requires the approval of all employees |
Advantages and Disadvantages of a Limited Liability Company
- Relatively low cost to establish the company
- Awareness of this company structure is on the rise, but it still has less prestige than a Joint Stock Company
- No strict compliant requirements, such as no obligation to publish financial statements
- Less regulations around details of company operations, compared with a Joint Stock Company
- Can be established by a single person, and the procedures for incorporation are relatively simple
3. Unlimited Partnership: 合名会社 (GMK = Gomei Kaisha)
Unlimited Partnerships require that all persons investing in the partnership become managers of the partnership and develop its business. Investors in Unlimited Partnerships are considered ‘unlimited liability partners’ and therefore jointly liable to creditors.
Characteristics of an Unlimited Partnership
| Minimum Capital | Nothing specified |
| Minimum Investors | 1 |
| Investors are called | employees |
| Liability for investors | unlimited liability |
| Highest decision-making body | General Employees Meeting |
| Name of Company Representative | Managing Partner (業務執行社員 = Gyomu-Shikko-Sha-In) |
| Ability to transfer equity interest | Requires the approval of all employees |
Advantages and Disadvantages of an Unlimited Partnership
- No capitalization rules and much easier incorporation procedures compared to a Joint Stock Company
- Wide scope of autonomy in articles of incorporation, allowing for relatively free decision-making regarding company operations
- No obligation to publish financial statements
- Not at all suitable if the objective is to expand the business in the future.
- All composed entirely of unlimited liability employees
As all employees are considered to have unlimited liability, If the business should fail, the liability may extend to the assets of the unlimited liability partners, and hence the risk is higher than with a Joint Stock Company or Limited Liability Company.
Despite the obvious disadvantage of unlimited liability when compared to a Limited Liability Company, it has no notable advantages and has therefore been virtually non-existent in recent years.
We therefore do not recommend establishing a Limited Liability Company for the aforementioned reasons.
4. Limited Liability Partnership: 合資会社 (GSK = Goshi Kaisha)
A Limited Liability Partnership is a form of company consisting of two or more members, of “limited partners” and “general partners”.
This Limited Liability Partnership company only requires registration of incorporation at the time of incorporation and does not require certification of the articles of incorporation, and has no term of office for directors or obligation to publicly announce financial results. In addition, the registration and license tax is lower than that of a Joint Stock Company, allowing a company to be established for lower costs.
Characteristics of a Limited Liability Partnership
| Minimum Capital | Nothing specified | |
| Minimum Investors | 2 | |
| Investors are called | employees | |
| Liability for investors | Unlimited liability for general partners and limited liability for limited partners | |
| Highest decision-making body | General Employees Meeting | |
| Name of Company Representative | Managing Partner (業務執行社員 = Gyomu-Shikko-Sha-In) | |
| Ability to transfer equity interest | For limited liability employees: Requires the approval of all general (unlimited liability) employees. For general (unlimited liability) employees: requires the approval of all employees. |
Advantages and Disadvantages of a Limited Liability Partnership
- Composed of both limited and unlimited liability partners
- Easier incorporation procedures than for a Joint Stock Company
- Wide scope of autonomy in articles of incorporation, allowing for relatively free decisions regarding company operations
- No obligation to publish financial statements
- Always have to hire employees other than yourself.
When establishing a company, far fewer people choose a limited partnership company compared to a Joint Stock Company or Limited Liability Corporation, and even today it is not widely known.
Summary: What type of company structure is right for you?
In this article, we have discussed in detail the types of company structures in Japan, as defined in the Companies Act of Japan.
There are four types of company structures in Japan: Joint Stock Companies, Limited Liability Companies, General Unlimited Partnerships, and Limited Partnerships.
While everyone’s needs differ, the Joint Stock Company is the most advantageous form of company when setting up a business, because it has a very high degree of social trust and name recognition. Unless you have specific needs for a Limited Partnership or the Limited Liability Corporation appeals to you for a particular reason, we suggest establishing a Joint Stock Company.
For those interested in learning more about How to Establish a Joint Stock Company in Japan, check this link.
Comments 2