In Japan, businesses typically operate under one of several corporate legal forms, with joint-stock companies (kabushiki kaisha or KK) and limited liability companies (LLCs) (godo kaisha or GK) being the most popular. This article outlines the features of each type to help foreign companies decide the best structure for their Japanese subsidiary.
1. Joint-Stock Company (KK)
Overview
Joint-stock companies (kabushiki kaisha or KK) are widely used in Japan for businesses of all sizes. They are the only form permitted for publicly listed companies. Ownership in a joint-stock company is represented by shares, which provide shareholders with control rights and profit-sharing opportunities.
Key Features
1. Ownership and Transfer of Shares
– Shareholders own shares proportional to their capital contributions
– Shares can generally be freely transferred, but many private (non-listed) joint-stock companies restrict share transfers through provisions in their Articles of Incorporation. Transfer restrictions often require approval from the board of directors or shareholders’ meeting.
2. Management Structure
– Directors are elected by shareholders to manage the company.
– A board of directors is optional for non-listed companies but mandatory for listed ones.
– The board elects a representative director who represents the company and presides daily operations.
– Many Japanese companies have a “president” (shachou), typically a representative director, though this title is not legally required.
– Shareholders typically do not manage the company directly, but in small companies, they often serve as directors to retain control.
3. Governance and Meetings
– Shareholders’ meetings must be held at least once annually. it approves financial statements, elect directors, and address major business decisions, such as mergers or capital increases.
– Resolution in writing in lieu of physically held shareholder’s meeting is available if all shareholders agree to the proposal.
– Certain important corporate actions, like director elections and share issuance, must be registered with the Legal Affairs Bureau, and these registrations are publicly accessible.
4. Flexibility for Foreign Directors
– There is no residency requirement for directors, allowing all directors to be non-Japanese residents.
– For foreign subsidiaries, parent company employees often serve as directors of the Japanese entity.
2. Limited Liability Company (LLC or GK)
Overview
Introduced in 2006, LLCs (Godo Kaisha or GK) have gained popularity, particularly among foreign companies establishing Japanese subsidiaries. LLCs offer a simpler structure and are often favored for tax efficiency, especially by U.S. firms.
Key Features
1. Ownership and Transfer Restrictions
– LLC ownership is recorded in the Articles of Incorporation and, in principle, registered with the Legal Affairs Bureau, with no issuance of shares.
– Transfer of ownership requires unanimous consent from all members, making LLCs less flexible for changes in ownership.
2. Management Structure
– Members manage the LLC directly, unlike in joint-stock companies where directors are elected.
– If a corporate entity is a member of the LLC, it must appoint an executing person (shokumu shikkousha), who is a natural person responsible for managing the company on behalf of the corporate member.
3. Key Differences from Joint-Stock Companies
– LLCs do not have a separation of ownership and management; members are actively involved in daily operations.
– Unlike shares in joint-stock companies, LLC membership cannot be freely transferred or sold without unanimous approval.
Disclaimer: This column intends to provide a high-level summary of the subject matter, and it does not aim to provide exhaustive information. Also, this column is for informational purposes only and does not constitute legal advice. For specific issues, we recommend consulting an expert. If you have any query, please contact us via inquiry form in this homepage.