Considerations for Establishing a Business in Japan: Should you establish a “Godo Kaisha” or a “Kabushiki Kaisha”?
Attorney at Law (Mexico)
TNV Law & Consulting
Attorney at Law (Japan)
TNV Law & Consulting / Shinwa Law
One of the first questions entrepreneurs and foreign companies face when establishing a business presence in Japan is whether to form a “Kabushiki Kaisha” (KK) or a “Godo Kaisha” (GK). This initial choice can significantly affect the company’s subsequent operations and development.
This article compares KKs and GKs from several practical perspectives, including incorporation costs and timelines, visa applications, opening corporate bank accounts, corporate governance and operational flexibility, and the company’s credibility and reputation in the Japanese market.
Mexico and other Latin American countries also offer different business entity types, such as the Sociedad Anónima de Capital Variable (S.A. de C.V.) and the Sociedad de Responsabilidad Limitada (S. de R.L.). At first glance, these entities may appear similar to Japanese KKs and GKs, respectively. Although they share certain characteristics, they also differ in legal structure, corporate governance, and practical use.
Accordingly, this article also highlights the main similarities and differences between Japanese and Mexican corporate forms, particularly those that foreign investors should understand when considering establishing a company in Japan.
Main types of business presence in Japan and their differences.
Companies can establish a presence in Japan in several ways. The most common are:
1) Without establishing a new company:
A) Representative office (cannot conduct business activities)
B) Branch office of a foreign copany.
2) By establishing a company:
A) Stock company
B) Limited liability company.
The main differences between the companies mentioned above are:
| Stock Company | Limited Liability Company |
Name in Japanese | Kabushiki Kaisha | Godo Kaisha |
Capital | 1 yen or more | 1 yen or more |
Number of investors | 1 or more | 1 or more |
Notarization required for incorporation | Yes | No |
Shareholders’ liability to creditors
| Limited to the amount of the shareholding. | Limited to the amount of the shareholding. |
Transfer of shares | In principle, shares may be transferred freely. The articles of incorporation may require Board approval for a transfer of shares. | Members must approve transfers unanimously. |
Required executives | At least one representative director is required. | In principle, all members are executives, but the articles of incorporation may provide otherwise. |
Ordinary general meeting of shareholders | In principle, it must be held every year. | Not required. |
Possibility of a public offering of shares | Possible | Not possible. |
Allocation of profits and losses | Allocated in proportion to the shareholding ratio. | May be allocated in a proportion different from the equity participation ratio if specified in the articles of incorporation. |
Taxes | Taxed based on the profits of the corporation and the profits allocated to shareholders. | Taxed based on the profits of the company and the profits allocated to members. |
Practical considerations when choosing between a Kabushiki Kaisha and a Godo Kaisha.
In the past, most companies were incorporated as stock companies. For this reason, they generally have a stronger reputation and are preferred by banks. However, an increasing number of companies are being established as limited liability companies, including several U.S. technology companies.
It is important to bear in mind that, although the Companies Act permits certain arrangements, they may operate differently in practice. For example:
1) The Companies Act allows a company to be established with a capital of one yen; however, in practice, other factors may affect the amount of initial capital. One factor that determines the minimum capital required is the hiring of employees from other countries who require visas. If the company wishes to hire personnel from other countries, it must have the minimum capital required to sponsor the visas.
2) The Companies Act does not require representative directors to reside in Japan. However, in practice, opening a bank account for a company whose directors do not reside in Japan can be quite difficult, as financial institutions generally apply stringent anti-money laundering and KYC procedures.
Comparison between a Kabushiki Kaisha and a Mexican stock corporation
Although the establishment of a Kabushiki Kaisha may appear similar to that of a variable-capital stock corporation, there are differences between the two types of company. Some of the main differences are:
1) As its name suggests, a Kabushiki Kaisha does not have variable capital. In other words, the company’s stated capital is the amount shown in its articles of incorporation. This amount can be changed, but the changes must be registered in accordance with the procedure established by law.
2) A Kabushiki Kaisha can be established with a single shareholder, whereas stock corporations in Mexico require at least two shareholders.
3) In Japan, Kabushiki Kaisha are required to disclose their financial status publicly once a year. This obligation does not exist for stock corporations in Mexico.
Practical challenges in cross-border incorporation.
As you can see, although the legal forms may appear familiar, each has features specific to its own legal system. Likewise, even when the legal requirements are clear, practical implementation often depends on subtle international nuances. We recently advised a company that was expanding its operations to Tokyo. During the registration process, the company needed to submit verified proof of address for its Mexican head office. The client provided standard, legally recognized Mexican compliance documentation. However, strict formatting discrepancies and rigid verification protocols led the Japanese institutions to reject the proof of address. Recognizing this bureaucratic bottleneck, our team stepped in to bridge the legal gap. By understanding exactly how Japanese institutions interpret foreign records, we completed the registration successfully and without further delay.
Conclusion.
For this reason, before incorporating a company, it is advisable to understand the differences and seek advice on the documents needed to ensure a smooth process that meets your needs.
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