Corporations in Japan
1. Clasification of corporations
Corporations are mainly classified as either Japanese domestic corporations(naikoku hojin) or foreign corporations(gaikoku hojin) in Japanese Corporation Tax. In addition to those categories, they are classified as follows.
| Japanese Domestic Corporation (Naikoku Hojin) |
Ordinary Corporation (Futsu Hojin) |
| Public Interest Corporation (Koeki Hojin) |
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| Public Corporation (Kokyo Hojin) |
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| Corporative (Kyodo Kumiai) |
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| Non-Juridical Organisation (Jinkaku no nai Shadan) |
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| Foreign Corporation (Gaikoku Hojin) |
Ordinary Corporation (Futsu Hojin) |
| Public Interest Corporation (Koeki Hojin) |
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| Public Corporation (Kokyo Hojin) |
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| Non-Juridical Organisation (Jinkaku no nai Shadan) |
2. Subsidiary in Japan
When you are planning to have a business presence in Japan, the most common legal forms of business entity are a subsidiary, a branch office, and a liaison office. Types of subsidiaries commonly used in Japan are following.
(1) Kabushiki Kaisha, “KK” (Joint stock corporation)
Kabushiki Kaisha is one of the most commonly used business presence in Japan. Each member of a Kabushiki Kaisha is required to make a capital contribution and will not assume any liability directly against the creditors of the corporation. The Kabushiki Kaisha may have a single shareholder.
Based on the principle of the separation between ownership and management, representative directors conduct the operation of the company. If representative directors make a decision on fundamental issues such as an amendment to the articles of incorporation, those must be approved at a shareholders meeting. Although at least one of those representative directors were required to have a residential address in Japan before, this requirement was removed in March 2015.
A certain large company must have some executives and committees such as a board of directors, audit and supervisory committee, and nominating committee.
(2) Goudou Kaisha, “GK” (Limited liability company)
When you set up a company in Japan, you can also choose a Goudou Kaisha, “GK” (Limited liability company). Goudou Kaisha is a relatively new type of company modeled on the limited liability company in the United States and was introduced with the enactment of the Companies Act in 2006.
Goudou Kaisha has the following two major features. The first is that the company has considerable flexibility with respect to methods of decision making about operations, distribution of profits and other internal matters. The investors in a Goudou Kaisha are known as “Members,” and they are able to have company representative rights and conduct operations. This is different from the Kabushiki Kaisha which is based on the principle of the separation between ownership and management.
The second is that Godou Kaisha is formed only by “limited liability members” (Article 576, Clause 4 of the Companies Act). This is similar to the shareholders of a Kabushiki Kaisha, and each Member’s liability to the debts and obligations is limited to the amount which they have invested (Article 580, Clause 2 of the Companies Act).
There are some advantages of using Goudou Kaisha as its subsidiary. The startup costs of the Goudou Kaisha are not as much as that needed to incorporate a Kabushiki Kaisha. Additionally, the Goudou Kaisha is characterized by relatively simple setup and operations as compared to a Kabushiki Kaisha. Goudou Kaisha may have a single Member. The Requirement that at least one of Members in charge of the operation must have a residential address in Japan was removed in March 2015.
Under U.S. federal tax regulations path-through tax treatment is available to the Goudou Kaisha, which means Goudou Kaisha is not taxed and each Member is directly taxed on the Goudou Kaisha’s income in the U.S.