Godo Kaisha vs Kabushiki Kaisha: Company Types in Japan

Godo Kaisha vs Kabushiki Kaisha: Company Types in Japan

When starting a business in Japan, entrepreneurs often find themselves facing a critical decision: whether to establish their company as a Kabushiki Kaisha (KK) or a Godo Kaisha (GK). 

Both are types of corporations in Japan and come with their own set of advantages and limitations. 

Understanding the differences between these two types of business entities is crucial for achieving long-term success.

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A Kabushiki Kaisha, or KK, is a joint-stock corporation that allows for public trading of shares. This option typically appeals to medium or large-sized companies that are raising capital to expand their operations. 

On the other hand, a Godo Kaisha, or GK, is a limited liability company, often referred to as a Japanese LLC due to its similarity to American LLCs. Unlike KKs, GKs cannot be publicly traded, making them a more familiar choice for small and medium-sized enterprises.

To break it down:

  • A KK—think big corporations wanting public trading.

  • GKs—don't go into publicly-traded territory.

  • The decision between using KK or GK comes down to things like whether you want people buying and selling your shares in the stock market and how massive your operation is.

  • We’ll get into all the details you ought to know right here. 

What is a Kabushiki Kaisha?

So a Kabushiki Kaisha (株式会社), or KK for short, is like Japan's version of a "stock company" or "joint-stock company." It follows the rules set by the Companies Act. In English, we'd probably call it something like a "stock corporation." 

The structure of a Kabushiki Kaisha is similar to that of an American C Corporation. One of the primary features of a KK is its ability to issue stocks in the form of shares, which can be distributed to shareholders, allowing the company to raise capital more easily and provides a potential exit strategy for investors, as they can sell their shares in the market.

Setting up a Kabushiki Kaisha requires a more complex process and a higher initial investment than establishing a Godo Kaisha. Additionally, KK companies must deal with more strict regulations and governance requirements. For instance, KK companies are required to have a board of directors and statutory auditors, and they must hold annual shareholders' meetings.

Despite the additional administrative and regulatory burden, a Kabushiki Kaisha is generally considered to carry more credibility and prestige in the eyes of Japanese customers, employees, and business partners, as it has been the standard form of business organization in Japan for over a century.

Examples of US/International KK companies in Japan

  • Disney—ウォルト・ディズニー・ジャパン株式会社

  • Kearney—A.T. カーニー株式会社

  • Shell—RSエナジー株式会社

  • Coca Cola—コカ・コーラ ボトラーズジャパン株式会社

  • Nestle—ネスレ日本株式会社

  • Godiva—ゴディバ ジャパン株式会社

  • Gap—ギャップジャパン株式会社

  • Zara—株式会社ITXジャパン

  • Adidas—アディダスジャパン株式会社

What is a Godo Gaisha?

A Godo Gaisha (合同会社), also known as Godo Kaisha or Goudo Kaisha or GK, is a type of business organization in Japan. Unlike a Kabushiki Kaisha (KK), a GK cannot be publicly traded, making it friendly for small and medium-sized enterprises (SMEs).

In a GK, owners, known as partners, share in the profits and losses of the business and have limited liability according to their respective contributions. This type of business organization is similar to the Limited Liability Company (LLC) in the United States.

The process of setting up a Godo Gaisha involves registration with the Legal Affairs Bureau and obtaining a company seal, among other requirements. An advantage of choosing this structure is the lower starting capital requirement, which can be as low as one yen.

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If you're a small business owner or a solopreneur and you're thinking about setting up a business in Japan, look no further than the Godo Kaisha. It's perfect for small to medium businesses because it protects your personal assets with limited liability and gives you lots of control over how you run things.

Plus, you’ll be in great company. Check out the examples of brand names that have registered in Japan as a GK. 

 Examples of US/International GK companies in Japan

  • Hewlett Packard Enterprise—日本ヒューレット・パッカード合同会社

  • Deloitte—デロイト トーマツ コンサルティング合同会社

  • Amazon Japan—アマゾンジャパン合同会社

  • Apple Japan—Apple Japan合同会社

  • P&G Japan—P&Gジャパン合同会社

  • Google—グーグル合同会社

Comparison: Godo kaisha vs kabushiki gaisha

Let's compare and contrast KK and GK to see where the major differences are visible. 

GK vs KK - comparison chart

a. Governing laws

Godo Kaisha (GK) and Kabushiki Gaisha (KK) are two types of legal entities in Japan. The GK is governed by the Companies Act while the KK is subject to both the Financial Instruments and Exchange Act and the Companies Act. The regulations for a GK are generally less strict compared to a KK, making it easier to set up and manage a GK.

b. Ownership structure

KKs have a more traditional corporate structure, where shareholders own the company by holding shares. In a GK, the company is owned by its members, who contribute capital to the business. KKs are usually larger and more established, while GKs are often smaller and more flexible.

c. Management

The management control in a KK is usually centralized, with a board of directors overseeing the company's operations and making decisions. In contrast, the management control in a GK is more decentralized and can be customized to better suit the needs of the business. Each member of a GK can participate in the management of the company, giving them more direct influence over the operations.

d. Liability

In a KK, shareholders only have to worry about debts up to what they've put in through their shares. So basically, their liability is limited by how much they invested.

Now, if we flip over to a GK—same deal but a slightly different nuance. Each member also gets this safety net of limited liability based on their contributions rather than share numbers. So again, no one's out here owing more than what they’ve chipped into the company.

e. Tax implications

KKs and GKs are treated differently for tax purposes. KKs are subject to corporate tax, and their shareholders may face double taxation due to dividend tax. GKs, too, are taxed at corporate tax rates, and partners must pay individual tax on dividends.

A tip from WeConnect, a service specializing in global compliance strategies: It's worth noting that if an American corporation owns the GK entirely, it can choose to designate the GK as a "disregarded entity" for international tax purposes. This designation allows the GK to be treated as a US branch for the purposes of US tax. This is not an option for the KK.

Thus, depending on ownership, a GK can be more tax-efficient for some businesses, but the final decision will depend on the individual circumstances of each company.

👉 Learn more about startups and Japan's tax laws here.

Wrapping it up

While KK has always been a well-established option, especially for medium to large-sized businesses, GK is becoming increasingly attractive for small and medium-sized enterprises due to its simplicity and flexibility.

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