In Japan, there are 3 main types of business structures you can use to set up business, excluding the sole proprietorship (個人企業 Kojin Kigyo). 2 are considered a ‘corporation’ or separate entity, and the other is what would be considered a Limited Liability Partnership (LLP) in the western world.
Unlike the western world and most other countries where a generalized version of an articles of incorporation can be used, in Japan, for reasons unbeknownst to me, the articles of corporation has to be created from scratch, and is the first and most important step incorporating the company. The articles of incorporation (Teikan 定款) defines everything from the initial capital investment amount to the business activities the company is allowed to partake in.
1. Kabushiki Gaisha 株式会社 (Corporation)
Set up cost: ￥250,000 – ￥350,000+ (depending on whether you use a lawyer or not, and the price charged by that lawyer)
The Kabushiki Gaisha company structure is what is known as the typical ‘corporation’ in the western world. Stock is issued to the investors/owners of the company according to the amount they invested. The amount of capital (Shihon Kin 資本金) used to start the corporation is extremely important and must be proven by each investor by bank statement.
An important thing to note is that the capital amount stated at the time of registration will be public information for everyone to see, and cannot be changed regardless of how big your company grows. In other words, if you start your company with ￥10,000, which is completely fine, and you happen to grow it to ￥100,000,000 in sales, the entire world will still view your company as a ￥10,000 company.
2. Godo Gaisha 合同会社(Limited Liability Company)
Set up cost:￥250,000, usually less
The Godo Gaisha is in essence a ‘corporation’ minus the shares. In 2006, the Godo Gaisha replaced the ‘Yugen Gaisha’ 有限会社 (Limited company) structure, which was more or less the same thing. Companies made prior to 2006 under the ‘Yugen Gaisha’ structure are still called Yugen Gaisha’s, but no new ones can be made any more.
Instead of issuing shares, the Godo Gaisha defines everything in the articles of incorporation (Teikan 定款). In other words, the company ownership, profit distribution, etc. are all defined in a contract rather than actual share ownership.
Differences between the two
The Godo Gaisha is similar to the Kabushiki Gaisha in many ways, and in reality they serve the exact same purpose. There are 5 main differences between the 2 structures:
- Godo Gaisha has no actual shares whereas Kabushiki Gaisha does (In reality, this is not a big deal and will not affect the business).
- Godo Gaisha cannot IPO (Jyoujyou上場 – get listed on a stock exchange) since it has no stock. However, it can be easily converted to a Kabushiki Gaisha at anytime in the future very easily.
- Cost – Godo Gaisha is substantially cheaper to register than Kabushiki Gaisha
- Public image – perhaps the most important difference. In a country like Japan where ‘face’ is everything, the Kabushiki Gaisha holds more credibility than the Godo Gaisha, which some may interpret as ‘less trustworthy’ than a Kabushiki Gaisha. The reality is they are both the same – a corporation.
- The titles given to the executives of the company. In a Kabushiki Gaisha, the Managing Director or CEO is called the Daihyo Torishima Riyaku (代表取締役). In a Godo Gaisha that same person is called a Daihyo Shain (代表社員). Again, this does not affect the business.
Which to choose?
All else equal, I personally would set up a Godo Gaisha. If you are a foreign company going into Japan, working with a lot of other foreign companies then definitely go with the Godo Gaisha. The only real reason you should ever choose a Kabushiki Gaisha is if you feel your Japanese clients will trust you more (a cultural thing), but most westernized businesses couldn’t care less. As a matter of fact, most foreign companies, even the large megacap companies like Apple Computers are registered as Godo Gaishas.
3. Yugen Sekinin Jigyo Kumiai 有限責任事業組合(Limited Liability Partnership)
Set up cost: Around ￥90,000. ￥150,000 if you use a lawyer to help you.
This is a partnership structure and is not considered a corporation (not considered a separate entity). The differences are generally the same between a partnership and a corporation in the western world.