IntroductionThe previous article introduced the characteristics, advantages, and disadvantages of the Kabushiki Kaisha. This article will focus on the introduction of the Godo Kaisha (GK)，which is a type of business organization in Japan modelled after the American limited liability company (LLC). Godo Kaisha has a short history because this type of business operation was newly introduced by the Companies Act, which became effective on May 1, 2006. In this article, you will learn the characteristics that distinguish it from other business forms in Japan, and what preparations you need to make to establish a Godo Kaisha in Japan.
|Limited Liability Company (Godo Kaisha)|
|Number of Partners||Minimum of one|
|Shareholders and Liability||Limited to the amount of capital contributed|
|Paid-in Capital||Minimum JPY 1|
|Taxation||Company is taxed by its profits. Shareholders have to pay taxes on dividends|
|Establishment Cost (Minimum legal fees only)||Registration and license tax JPY 60,000 Articles of incorporation stamp JPY 40,000|
|Division of Profits||Free|
AdvantagesMost of the investors are attracted by the simplified structure of the GK company, which makes it cost-effective and easy to start. 1. A GK company is an independent Japanese legal entity, so its liabilities are local and personal to it and do not automatically become the liabilities of its parent. 2. Establishing a contract company is relatively more cost-effective. A GK company does not need notarization fee nor a stamp duty, thus making it cost less to set up than a KK company. Also, GK’s do not need to prepare minutes of shareholder’s meeting, which will save the lawyer fees. 3. A GK does not need to hold annual general meetings or other meetings of its members to approve its annual financial statements. 4. The GK company’s members can decide ownership percentages and profit distribution based on both capital contributions and non-capital (usually know-how or intellectual property) contributions.
The disadvantages of the Executive Manager System are the main reasons why some investors do not prefer opening a GK company.1. In a sole-member GK company, the Executive Manager has unrestricted authority to bind the company to loans or use the power for personal gain. 2. A GK company’s Executive Manager’s term is not limited, and it will cost a lot to end an Executive Manager’s term as well. 3. The performance-linked compensation structure for an Executive Manager can lead to expensive tax consequences. Because bonuses or commissions paid to the Executive Manager can create notional pretax profits for calculating corporate income tax. 4. The GK company is often regarded as a less credible entity that is not suitable for business-to-business activities. Therefore, GK companies may have difficulty in recruiting high-quality employees who may feel that a GK is a small or a less reliable company.
Procedures for Establishing a Godo KaishaA general flow of the procedure for establishing a GK company is listed below. 1.Appoint an Incorporator Anyone resident in japan who owns at least one unit of the GK company units can act as the incorporator and the resident Managing Member of the GK company. 2.Deposit Paid-in Capital Considering the practical factors, it is better to deposit at least JPY 1,000,000 in the incorporation bank-account (which is a bank account in the incorporator’s name, not in the company’s name) before the date of incorporation. Also, the GK can use the paid-in capital immediately after incorporation. 3.Prepare the Incorporator’s Resolution and the Articles of Incorporation in Japanese. It should be noticed that only the Japanese text of the article of incorporation has legal effect, so it’s important to understand what kind of information should be provided by the incorporator.
- Company name (English or Japanese)
- The number of units issued at incorporation and the member’s contributions.
- Members’ Details such as name and registered address
- Registered Office Address in Japan where it can receive official documents.
- The specific description of the GK company’s business purpose.
- Financial Year (which can start on any day of the year and ends 12 months after starting).