Setting up with a GK godo kaisha
Japan introduced the godo kaisha company (abbreviated to “GK”) in 2005, but many Japanese are still unaware of GKs and tend to prefer KKs which they traditionally view as prestigious. The relative lack of awareness of GKs is surprising given that Apple in Japan uses the GK, as do the subsidiaries of many other US companies.
Venture Japan can incorporate a Japanese GK company from JPY290,000 plus 8% sales tax.
- A Japanese godo kaisha company is equivalent to a US LLC.
- Non-residents can own 100% of a Japanese GK company (except in certain regulated industries such as energy and transportation).
- A godo kaisha company can be managed by all members (investors) or by an elected Manager (who must be a member).
- A Japanese GK company must have a representative (Executive Manager) resident in Japan.
- A godo kaisha must have a registered office address in Japan.
- A Japanese GK company’s name can be in English but must include the Japanese characters 合同会社 at the start or end (such as Apple Japan 合同会社).
Setting up with a tokurei yugen kaisha ‘TYK’
PLEASE NOTE – effective May 1, 2006, Japan’s Limited Liability Company Law is abolished and for legal purposes yugen kaishas will be treated as sole director kabushiki kaishas. Existing yugen kaishas will continue to operate as “tokurei yugen kaisha” or “TYK”. The last day upon which a yugen kaisha can be registered is April 30, 2006. Also, changes in the Commercial Code and the new Company Law take efect on May 1, 2006 which allow sole director kabushiki kaishas to be formed and effectively eliminates the requirement for paid-in capital for new kabushiki kaishas. At long last Japan turns entrepreneur!
In the previous section on starting a Japanese branch-office, I hinted at my preference for the tokurei yugen kaisha (often pronounced ‘tokurei yugen gaisha’ and often referred to simply as a ‘TYG’ or ‘TYK’), the Japanese form of limited liability company.
It seems I am not alone in my preference for the yugen kaisha – it is the corporate form Exxon Mobil chose for its Japanese subsidiary (Exxon Mobil y.g. and is often recommended by the Big-5 accounting firms, especially to clients who are headquartered in the US.
The yugen gaisha’s main attractions are:
- it has relatively simple and unobtrusive financial reporting requirements
- its administration and registration requirements are relatively simple (as with a US LLC a yugen gaisha does not need directors, only a ‘representative manager’)
- its initial paid-in capital requirement is relatively low at ¥3,000,000 (~US $28,000)
- it is an independent Japanese legal entity so its liabilities are local and personal to it and do not automatically become the liabilities of its foreign parent
- a yugen kaisha is an eligible entity under the ‘check the box’ entity classification regulations for US tax purposes, allowing its US parent to obtain flow-through US income tax treatment
For executives used to starting ‘off-the-shelf’ companies with nominal paid-in capital in Europe and the US, it will be a surprise to see the yugen kaisha’s statutory US$28,000 paid-in capital requirement described as ‘relatively low’, but relatively low it is in comparison to the ¥10,000,000 (~US$93,000) requirement for the kabushiki kaisha ‘KK’.
Yugen gaishas and kabushiki kaishas have always had statutory minimum amounts of capital required to be paid in and on deposit on the day of their establishment, but the amounts were substantially increased to present levels in the early 1990s. In the case of the yugen gaisha, the statutory number of ‘subscription units’ to be contracted (not necessarily issued) is 60 at a par value of ¥50,000/unit and for the kabushiki kaisha it is 200 shares issued at a par value of ¥50,000/share. The increase in paid-in capital had little effect in reducing the number of corporate bankruptcies (which was lawmakers’ original intent) but, until the April 2003 introduction of the ‘kakunin kabushiki kaisha’ and ‘kakunin yugen gaisha’, it did succeed in dissuading many Japanese would-be Bill Gates’ and Larry Ellisons from starting up and has also been a disincentive to smaller US and European companies wanting to start business in Japan.
Once again those infamous Japanese business and market myths have something to contribute(?) and want you to believe that no Japanese customer will treat you seriously if you are “only a yugen gaisha” – “you must incorporate as a kabushiki kaisha if you want to succeed” they say. That particular myth may have been true 20 or 30 years ago when there were far fewer foreign companies doing business in the Japanese market and they were treated with general suspicion, but in 2004 it is very unlikely to matter to your customers whether you incorporate as a kabushiki kaisha, a yugen gaisha, a tokumei kumiai ‘TK’ or simply use a branch-office.