What is Kabushiki Kaisha?

Introduction

The previous article gave a brief overview of business forms in Japan.

https://sugee.jp/2020/02/28/business-operations/

This article will focus on the introduction of Kabushiki Kaisha, which is the commonest company type in Japan. It is important to note that Kabushiki Kaisha is not “better” than other company types—there are advantages and disadvantages to consider for establishing a Kabushiki Kaisha in Japan. If you think this form of company is right for you, in this article, you will find out what you need to prepare and what kind of procedures you need to go through before you establish a Kabushiki Kaisha.

History

Kabushiki Kaisha (株式会社) abbreviated KK, is a type of company (会社, Kaisha) defined under the Companies Act of Japan. The term is often translated as “stock company”, “joint-stock company” or “stock corporation”. Many Japanese companies translate the phrase “株式会社（KK）” in their name as “Co., Ltd.” Rules regarding Kabushiki Kaisha were set out in the Commercial Code of Japan. During the Allied Occupation of Japan following World War II, the occupation authorities introduced revisions to the Commercial Code based on the Illinois Business Corporation Act of 1933, giving Kabushiki Kaisha many traits of American corporations. Over time, Japanese and U.S. corporate law diverged, and KK assumed many characteristics not found in U.S. corporations. A new Companies Act (会社法, kaisha-hō) took effect on May 1, 2006 greatly affecting the formation and function of KK’s and other Japanese business organizations, bringing them closer to their contemporary counterparts in the U.S.

Characteristic

	Stock Company (Kabushiki Kaisha)
Number of partners	Minimum of 400 to keep listing on the Tokyo Stock Exchange
Shareholders and liability	Limited to the amount of capital contributed
Paid-in capital	Minimum JPY 1
Taxation	The corparation is taxed by its profits. Shareholders have to pay taxes on dividends
Establishment cost (Minimum legal fees only)	Registration and license tax  JPY 150,000 Attestation fee of the Articles of Incorporation JPY 50,000 Articles of Incorporation stamp JPY 40,000
Division of profits	Depend on capital contribution ratio

• A KK company must have a registered office address in Japan, and it can register its name in English but must include the Japanese characters 株式会社 at the start or end.
• A KK company does not need a director resident in Japan, but it is better to have as a lot of high-street banks might refuse to open a domestic bank-account for a KK company without a resident director, and a landlord might refuse to lease an office to such a KK company as well.
• A KK company can have a Board of Directors with three or more directors (including at least one representative director) and an auditor, or can desert a Board and just have one or more directors (each of whom must be a representative director).
• A KK company only needs JPY1 paid-in capital, but it is better to prepare adequate initial capital because the KK will spend more than JPY1,000,000 on incorporation and in the first few months of business. At the same time, a KK company must have paid-in capital of JPY5,000,000 or more to sponsor any working visa, be it an employee’s visa or its owners Business Manager visa.

Advantages

• As an independent legal entity, the liabilities of a KK company are local and personal to it and do not automatically become the liabilities of its parent company.
• A KK company, which has a board of directors and an auditor, provides good corporate governance protection for its shareholders so that major decisions can only be made with the approval of the shareholders or the Board.
• A KK company is relatively unrestricted in its ability to sell shares to raise operating capital except for the regulations applicable to listing on a public exchange.
• A sole-director sole-shareholder KK company is relatively simple to operate because most matters require only shareholder approval. In many ways, a sole-director sole-shareholder KK company is now the simplest and least time-consuming of all Japan’s business entities.
• A KK company has a better reputation so that it is much easier to attract Japanese employees to a KK company than to a branch-office or Godo Kaisha.

Disadvantages

The disadvantages of a KK company is the limitation by the board of directors system.

• Firstly, all directors of a KK share joint and several liabilities, which means that if any one of them is negligent, the plaintiff can recover damages from all of them, regardless of their involvement.
• Secondly, the abuse of power is an issue that should not be neglected. A representative director has the authority to bind a KK to an obligation, even without the Board approval. Facts have also proved that there are many examples of directors using the company for personal gain.
• Finally, the board system is relatively hard to change. For instance, the directors’ terms could be allowed for up to ten years if shareholders approve and removing a director mid-term is sometimes very expensive. Also, in a KK, when voting on important corporate issues, any decision must be unanimous and voting rights are related to financial investments, which means it will take much more time for a KK to make a decision than other companies.

Procedure

If you already know the characteristics of the KK company very well and feel that this business model best meets your standards for starting a business in Osaka, here is a quick draft of the procedure needed to establish a KK. For a detailed procedure on how to establish a KK, check out our article on How to Establish your Business in Japan.

1. Decide the promotor, the initial shareholders and the initial directors (and statutory auditors if necessary), then enforce the service agreements with them as necessary.
2. Prepare the Articles of Incorporation setting basic corporate matters such as the trade name, corporate papers, shares shareholders meeting board of directors and dividend, as well as other as other incorporation documents. Also, you should make sure that the Articles of Incorporation notarized by a notary.
3. Have the promotor deposit the initial contribution funds.
4. Have the initial directors (and statutory auditors if necessary) verify the incorporation procedures and prepare the verification report.
5. Apply for the commercial registration of the incorporation with the Legal Affairs Bureau.

After the completion of commercial registration, the following actions should be taken.

1. Open a corporate bank account for the KK and transfer the initial contribution funds to the account.
2. Enforce agreements for the employees, vendors, customers, landlord and other related parties.
3. If the KK shares are acquired by a foreign investor defined in the Foreign Exchange and Foreign Trade Law, you should have the notification of the acquisition of the KK shares filed with the bank of Japan.
4. Other necessary filings with tax and other government and local authorities.

Conclusion

The KK is a typical type of company for business operation and as one of its most essential characteristics, the board of directors system is a double-edged sword, which not only brings prestige to the company but also hides many of the inherent disadvantages. But any kind of company must have its advantages and disadvantages, so SUGEE is here to provide you with as comprehensive information as possible to help you determine which type of company is more suitable for your start-up activities.

Notes for the readers:
Please use this article only as a reference, not as a legal guideline. Therefore, sugee.jp will take no responsibility or liability, so far as legally possible, for any consequences of your actions. This article was written on 5 March 2020.

Reference

[1] En.wikipedia.org. (2020). Kabushiki gaisha. [online] Available at:https://en.wikipedia.org/wiki/Kabushiki_gaisha [Accessed 4 Mar. 2020].

[2] Anon, (2020). [online] Available at: https://www.venturejapan.com/incorporate-a-japanese-company/incorporate-a-kk-kabushiki-kaisha/ [Accessed 4 Mar. 2020].

[3] Waseda.jp. (2020). –JAPANESE LAW INFORMATION– Waseda University Institute of Comparative Law. [online] Available at: http://www.waseda.jp/hiken/en/jalaw_inf/topics/005masai.html [Accessed 4 Mar. 2020].