Struggling to understand the differences between KK and GK entity types in Japan? We’ll help you out.
You’re so excited to start your business in Japan. One day, you decide it’s time. Let’s do this. You plop into your chair, crack your knuckles, and start typing away on your computer, researching the process on how to incorporate in Japan. But then…you come across different types of companies in Japan. And you realize you have to choose between entities you’ve never heard of, like Kabushiki Kaisha and Goudou Kaisha. Your brow furrows. What the…?!
At this point, after reading a bunch of jargon in random internet articles and rubbing their temples, our clients typically come away with more questions than answers.
Don’t let this hiccup put a delay on starting your business!
We’ve handled over 1,000 entity registrations across all industries and have seen it all. So let’s take out the confusion when deciding whether KK or GK is better for your business in Japan. We want to help you quickly make the right choice and move on with expansion of your business.
For the record, there are 4 different types of “business entities” in Japan
They are: Kabushiki Kaisha (KK), Goudou Kaisha (GK), Gomei Kaisha and Goushi Kaisha.
The second two are NEVER used, so let’s forget them. The first two are the most common, so let’s focus on those.
What’s the difference between Kabushiki Kaisha (KK) and Goudou Kaisha (GK)?
If incorporating in Japan was like Star Wars, Kabushiki Kaisha is like Yoda and Goudou Kaisha is like Luke Skywalker (hey, we’re going out on a limb with this one – stay with us!). One has been around for ages and is honored and revered; the other is respected and has unique talents not even Yoda can do. There’s no doubt that Yoda is a great option, but you might have a specific reason to go with Luke.
From an academic perspective, the KK is a joint-stock company (like the American C Corp) that’s been around since 1873 and has the most flexibility as an entity type. The GK is a limited liability company (LLC, originally modeled after the US LLC structure) that has been around since 2006 and can do almost the same thing that KKs can do with some unique benefits.
To Break it All Down, Here are 5 Key Differences to Consider when Comparing KK vs GK:
Since the KK has been around for over a century, your Japanese customers, employees, and business partners might feel it carries more credibility compared to a GK. However, now that GK has been around for 15 years, credibility is becoming less of an issue, especially when big names like Amazon, Apple and ExxonMobil are GKs. It’s impossible to know for sure how strong the image is of the GK, but depending on the industry and commercial plan, a KK may still be the safest bet.
KK allows for a scalable organization, with the ability to have a Board of Directors, list on the stock exchange, and raise additional money through selling shares, etc. In contrast the GK can do none of these things.
With a KK, there is a clear distinction between ownership (shareholders) and management (directors). In contrast, GK investors are considered partners who help run the company and their investment amount does not always reflect the same level of authority nor voting rights over the company.
The registration process and ongoing corporate compliance for GKs is simpler and less expensive compared to KKs. For example, KKs have higher registration taxes charged by the government to legally established compared to GKs (JPY 150,000 for KK and JPY 60,000 for GK). Also, KKs are required to, at minimum, annually hold shareholders meetings, publish financials and submit other reports, whereas GKs do not have any of these requirements. If a KK is set up with a Board of Directors, even more compliance is required including holding quarterly Board of Director meetings and taking minutes as well as appointing a statutory auditor (this is a named person, not a audit company) who is responsible for the financial integrity of the KK and must submit an auditor report at the end of the year. All these additional requirements for a KK come with additional legal support costs on an annual basis. Without a Board of Directors, you are looking at JPY 200,000 – 300,000 (USD 2,000 to USD 3,000) per year in additional compliance cost. If you have a Board of Directors, this cost is even greater.
5. Tax Benefits
If the GK is wholly owned by an American corporation, the American corporation has the option to elect the GK as a “disregarded entity” for international tax purposes, allowing it to be treated as a branch of the US from the perspective of US tax. This option does not exist with the KK.
So which one’s better, Kabushiki Kaisha or Goudou Kaisha, KK or GK?
We literally had an internal debate about this for over an hour and couldn’t come to a conclusion about which is better by comparing the features, alone. It’s like comparing Yoda and Luke Skywalker – you might think that Yoda is the obvious choice, but if your primary goal is to defeat Darth Vader, then Luke Skywalker is the guy for the job.
Likewise, most people assume that KK is the safer choice, but there are benefits to going with a GK depending on your business aims. So in general, one is not better than the other; but there’s one that’s better for you depending on what you’re looking to achieve with your business.
Still stuck? This can help:
Credibility and cost are the two things that weigh the most on the minds of leaders during this process. If you have Japanese clients, and you want absolute credibility with them, then go for the KK. If you’re mindful of expenses and not so hung up on the image, then the GK may be the best choice for you.
And if you’re an American company? You can take advantage of the unique tax benefits that the GK offers (we can walk you through this if you want more info).
Want to talk it through? We’re happy to help – contact us here and we’ll guide you to the best decision!
Oh, and let the force be with you (c’mon, we had to say it).