The Kabushiki Kaisha and the Godo Kaisha have been introduced in previous articles, with a detailed explanation of their characteristics, advantages and disadvantages, and the procedure of establishing both types of companies.
This article will focus on the Gomei Kaisha and the Goshi Kaisha, which are company types that are rarely established by foreign entities in Japan. It may seem that there are better company types for foreigners than the Gomei Kaisha or the Goshi Kaisha. Nonetheless, why do people still choose these two kinds of business operations? You will find the answers below.
Gomei Kaisha (合名会社) is the Japanese equivalent of a general partnership. As such, the members of the partnership represent the company. The most significant feature of Gomei Kaisha is that each member of the partnership has unlimited liability; thus, are jointly liable to the company’s creditors. The Commercial Code prohibits a company from becoming a member with unlimited liability in another company. Therefore, only natural persons may be members of a Gomei Kaisha. Due to unlimited liability, this kind of operation was mostly chosen for personal business. Gomei Kaisha has not been used much in the past, and it is conceivable that there will be few new establishments of such in the future.
Goshi Kaisha (合資会社) is the Japanese equivalent of a limited partnership. The most significant feature of Goshi Kaisha is that only members with unlimited liability represent the company, and those members are held jointly and are severally liable to the partnership’s creditors. Members with limited liability are liable to creditors only for their contributions in the capital. Also, a limited partner is not precluded from engaging in similar business enterprises or the participation in other companies. However, the advantages of limited liability are offset by the prohibition against his making non-cash contributions and his exclusion from managerial participation and authorized representatives of the company. In the past, it was business that could be established with small capital. However, with the enactment of the new company act in 2006, the minimum capital of the KK company has been abolished and Godo company system has been established as well, thus, increasing the number of new establishments at present.
| GENERAL PARTNERSHIP (Gomei Kaisha) | LIMITED PARTNERSHIP (Goshi Kaisha) | |
|---|---|---|
|
Number of Partners |
Minimum of one partner |
Minimum of two partners |
|
Shareholders and Liabilities |
Unlimited liability |
Unlimited for the active partners; |
|
Paid-in Capital |
No minimum capital |
No minimum capital |
|
Taxation |
A partnership is taxed by its profits while shareholders have to pay taxes on dividends |
A partnership is not taxed, but partners have to pay taxes on profits allocated |
|
Establishment Costs (Minimum Legal Fees) |
Registration and license tax; JPY 60,000 |
Registration and license tax; JPY 60,000 |
|
Division of Profits |
Free |
Free |
These two types of operations have two characteristics in common. Firstly，transfers of equity is subject to unanimous approval by other members. Secondly，“pass-through taxation” is unavailable, and partners cannot escape double taxation via profits and dividends. This is also the main reason why foreigners are unwilling to establish these two kinds of operations in Japan.
Conclusion
The main disadvantage of Gomei Kaisha and Goshi Kaisha for foreigners is the unlimited liability of the members, especially for a self-employed with insufficient liquidity to defend against risks that the company may face in the future. Also, After the new company act was promulgated in 2006, many restrictions on Kabushiki Kaisha were lifted and a new operation of a company, a Godo Kaisha was established, which meets most requirements of small and medium-sized start-up companies. Thus, Gomei Kaisha and Goshi Kaisha which already had few demand, became even more unpopular than before.
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 25 March 2020.
Reference
[1]Scholarlycommons.law.case.edu. (2020). Retrieved 25 March 2020, from https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=2113&context=jil.
[2]Corporate – Ohara & Furukawa. Ohara & Furukawa. (2020). Retrieved 25 March 2020, from https://oharalaw-japan.com/practice-areas/corporate/#1454476427170-2fb0927c-b9ee.
[3]合同会社Vol.29 合名会社と合資会社の違いについて. 会社設立完全ガイド. (2020). Retrieved 25 March 2020, from https://www.venture-support.biz/llc/unlimitedlimited/.
