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Setting up a Company in Japan

What kind of companies exist?

Except for the sole proprietorships, there are four types of companies recognised by Japanese laws :

  • 合名会社 "go-mei gaisha" (commercial partnership)
  • 合資会社 "go-shi gaisha" (limited partnership
  • 有限会社 "yugen kaisha" (limited liability corporation ; Ltd.)
  • 株式会社 "kabushiki kaisha" (general corporation limited by shares)

We could also add the 合弁会社 "go-ben gaisha" (joint venture).

What are the advantages and disadvantages of each?

Liabilities

Both the sole proprietorships and partnerships have unlimited liabilities, which can be very dangerous, as any personal possessions (house, car, savings...) can be seized to repay potential debts. The go-shi gaisha type of partnership actually has unlimited and limited liabilities, depending on whether they are general or limited partners. In any case, there must be people carrying unlimited liabilities, and all partners have direct liabilities (i.e. each person can be sued individually).

The advantage of incorporating one's business into a yugen or kabushiki kaisha, is that the shareholders have an indirect and limited liability, which means they are only liable to creditors for the amount they have invested (shares) and cannot be sued personally, but always in the name of the corporation.

Size

  • Partnerships must have at least two partners. It is difficult to increase the size of the company, as new partners must be approved unanimously by other partners.
  • Yugen Kaisha requires just one director, the number of employees is restricted to fifty people.
  • Kabushiki Kaisha must have at least three directors and one accountant, but are not limited in size.

Cost

Partnerships are cheaper to establish than corporations. They do not require any notary fee (50,000 ¥) nor the revenue stamp (40,000 ¥) for the articles of incorporation of the Y.K. and K.K. Among corporations, the Kabushiki Kaisha's complex structure will cost more in lawyer's fee than the Yugen Kaisha.

Conclusion

Corporations are safer than partnerships but more costly to establish. I would anyway recommend to go for a yugen kaisha as a first, small or medium company. Partnerships are too risky and difficult to increase in size. Kabushiki kaisha have more obligations, such as submitting an annual report (which requires an accountant), are more suitable for big companies.

Both Y.K. and K.K. command more prestige than partnerships, and therefore faciltate business with other Japanese companies. The most prestigious of the two is of course the K.K.

How much does it cost?

Since early 2003, the minimum capital to create a company in Japan is only 1 yen. Nevertheless, they must reach a minimum capital within five years (3 million yen for the Y.K. and 10 million yen for the K.K.).

The registration fee cost at least 181,000 ¥ for a Yugen Kaisha and 321,000 ¥ for a Kabushiki Kaisha (this is if you start with a capital of 1yen, otherwise fees are higher).

These fees cover:

  • Certification of the articles of incorporation (定款認証料 teikan ninshouryō): 50,000 ¥
  • Revenue stamp for the articles of incorporation (定款に貼る印紙代 teikan ni haru inshidai): 40,000 ¥
  • Registration licence tax ((登録免許税 touroku menkyō zei) : 60,000 ¥ for Y.K. / 150,000 ¥ for K.K.
  • Company's seals (会社印鑑 kaisha inkan): 30,000 ¥ (includes real seal, bank seal, square seal, rubber seal).


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