Business entities in Japan - yugen kaisha and kabushiki kaishi

Business entities in Japan - yugen kaisha and kabushiki kaishi

So now that I've talked a little about some of the advantages and disadvantages of setting up a branch relative to a subsidiary, I'd like to talk about actually setting up a subsidiary company in Japan.

In the following, I'll generally be talking from the context of a parent setting up a wholly owned subsidiary. Many of the procedures for setting up a company would be the same for a company which is a joint venture with Japanese and American shareholders.

First, Japan has four basic forms of corporate entities :

  1. Gomei kaisha (partnership)
  2. Goshi kaisha (limited partnership)
  3. Yugen kaisha (limited liability company)
  4. Kabushiki kaisha (joint stock company)

(Note a kabushiki kaisha is often called a kabushiki gaisha with a G, but always abbreviated as KK).

A yugen kaisha may be thought of as a subchapter S corporation, while a kabushiki kaisha is a standard corporation.

With respect to these four corporate forms, I'm sure that partnerships exist in Japan, but I've never met anyone who was involved in one. I have seen, however, innumerable Mom-and-Pop operations that are yugen kaisha's. The reasons for this are clear because the accounting, capitalization and procedural requirements for a yugen kaisha are much less severe than for a kabushiki kaisha.

Although Japan is essentially a nation of small businesses - 70% of all Japanese companies have fewer than 20 employees - the vast majority of Japanese companies are formed as KK's as opposed to yugen kaishas.

This is attributed to the fact that KK's are perceived as a larger, more prestigious operation - something important in image conscious Japan.

I think this may change in the next few years because the capitalization requirements for KK's and Yugen kaishas changed dramatically in 1991.

Before 1991 a yugen kaisha, the limited liability company, could be formed with approximately $1,000. After 1991, the minimum capitalization became about $30,000. (This assumes that one dollar equals ¥100).

Also, in 1991, the minimum capitalization amount for a KK, the standard corporation, increased from about $4,000 to $100,000. Although existing companies with insufficient capital have five years to increase their capital, I'm sure there will be a higher proportion of Yugen kaishas in the future.