It’s important to understand the characteristics of each type of company and choose the one that best suits your company.
In a KK, the shareholders, who are the owners of the company, elect directors at a shareholders’ meeting and entrust the management of the company to those who can manage the company.
This is expected to result in prompt decision-making and rational business execution by the directors.
On the other hand, shareholders are interested in whether the directors are properly executing their duties. The Companies Act provides various checks to ensure that business is properly executed by the directors. For this reason, the organization of a stock company (KK) can be complex.
In a limited liability company (GK), the members, who are the owners of the company, have the structure to manage the company themselves. Since the members manage the company on their own, there are no complicated checks and balances, unlike in a joint-stock company.
In terms of on-going compliance, there are less requirements placed upon a GK. For example, there is no need for annual meetings or for board meetings. Although annual members’ meetings are not mandatory under the Companies Act, a GK may elect to have such meetings. However, in a KK, an annual shareholders’ meeting must be held every year within three (3) months after the close of the company’s business year, and where a KK has a board of directors, a board of directors’ meeting must be held every three (3) months.
Both types of companies may raise funds at any time after incorporation. A KK provides a way to raise funds from an unspecified number of investors. A KK may list its shares on a stock exchange. On the other hand, a GK does not provide a way to raise funds from an unspecified number of investors. Since it is assumed that the investors themselves will be involved in the management of the company, it is assumed that only a small number of investors will invest in the company.
Although corporate tax rates for both GK and KKs are the same, there is one notable difference when referring to a GK which is a subsidiary of a corporation from the United States. In this case, a GK may, by virtue of “check the box” US taxation law, utilize pass-through taxation. Such an option is not possible for a KK which is a subsidiary of a US corporation.
In terms of reputation, a KK has a more renowned presence and is widely recognized by Japanese consumers as a stable and trustworthy business entity. In the case of GK, it is not as well known since it was only introduced in 2006.
However, there are examples of leading international companies such as Apple, Cisco Systems, ExxonMobil, and Wal-Mart establishing GKs in Japan instead of traditional KKs.
The initial documentation and costs involved with establishing a GK are also less demanding than that of a KK. A notarization fee of JPY 55,000 for the Articles of Incorporation is not required for a GK. Also, the registration tax is cheaper for a GK than that of a KK where the minimum for a GK is JPY 60,000 while for a KK is JPY 150,000. However, it should be noted that more documents and procedures are required when the members of the GK are legal entities (companies).