Different Types of Japanese Entities
The top two entity types in Japan are the Kabushiki Kaisha (KK) and the Goudou Kaisha (GK). The KK is a joint stock company, equivalent to the American C Corp. The GK is a limited liability company (LLC). Both entity types limit liability to the amount of the shareholder’s equity investment and generally allow for full business operations.
Kabushiki Kaisha (KK)
Kabushiki Kaisha Advantages
- Most common type of entity in Japan, generating higher credibility which can be helpful when dealing with local customers, employees and business partners. The GK, while still very credible, is a newer type of entity recently established in 2006, and therefore still has a weaker image in Japan. That being said, the difference between a KK and a GK in terms of image has become impossible to quantify now that the GK has been around for almost two decades.
- 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.
- Clear organizational distinction between ownership (shareholders) and management (directors). In contrast GK investors are legally considered partners, who help run the company, and investment amount is not proportionate to authority over the company or voting rights.
Godo Kaisha (GK)
Godo Kaisha Advantages
- The registration process and ongoing corporate compliance for GKs is simpler and less expensive compared to KKs. KKs are required to submit an Articles of Incorporation, and annually hold shareholders meetings, publish financials and submit other reports, whereas GKs do not have any of these requirements.
- If the GK is wholly owned by an American corporation, the American corporation has the option to elect the GK to be considered a “disregarded entity,” allowing it to be treated as a branch of the US for US tax purposes. This option does not exist with the KK.
If your entity will be wholly owned by another group company as a local support office with no intention to raise outside capital or list on the Japan stock exchange, it is the most common nowadays. It’s most common nowadays for most foreign companies to set up a GK as it is simpler and less costly to set up and maintain. Short of that, it is still common for foreign companies to set up a KK.
If a foreign entity will be wholly owned by another group company as a local support office, with no intention to raise outside capital or list on the Japan stock exchange, it is most common nowadays for foreign companies to set up a GK as it is simpler and less costly to establish and maintain.
Otherwise foreign companies typically set up a KK.
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