Below is a comparison of the 3 major entity forms that foreign companies use in Japan to do business.
For a general overview of these entity forms, please see our page on Types of Companies in Japan.
Comparison of the 3 major entity forms
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| Branch Office | K.K. | G.K. | |
|---|---|---|---|
| Capital requiremen | N/A | at least 1 JPY | at least 1 JPY |
| Number of shareholders / partners | N/A | minimum of 1 | minimum of 1 |
| Liability | unlimited liability | limited liability | limited liability |
| Transferring shares | N/A | freely transferable. May restrict transfer in Articles of Incorporation |
unanimous approval of partners necessary |
| Number of executives | 1 or more representatives residing in Japan | depends upon several factors | all partners have executive powers, but this may be varied in articles of association |
| Term of office | no requirements | depends upon several factors | no requirements |
| General (annual) meeting requirement | no requirement | annually | no requirement |
| Distribution of profits | N/A | according to shareholding | according to participation ratio, but this may be varied in articles of association |
| Taxes | income arising in Japan is taxed | double taxation | double taxation |
Features of a K.K. explained
To keep matters simple, and more realistic for a foreign company thinking of doing business in Japan for the first time, we have assumed that:
- you are incorporating a K.K.;
- you will be investing less than 100 million JPY to the K.K.;
- the K.K. has share transfer restrictions and is not a publicly traded company; and
- you will not have statutory (a) accounting advisors, (b) company auditors, (c) committees, or (d) any other special organizational features that normally only larger companies choose to or are required to have.
Note: As to why we are assuming an investment of less than 100 million JPY, this is because the amount of capital affects how a company will be classified under various laws.
For example, under the tax laws of Japan, if the capital of a company is less than 100 million JPY, then it will be considered a small or medium size company, which entails various tax benefits (for example, small and medium size companies are taxed at a reduced corporate income tax rate, and are allowed to carry forward losses for up to 10 years).
Furthermore, under the Companies Act, if the capital of a company is greater than or equal to 500 million JPY, then the company will be required to have its books audited by a public auditor.
Because of these considerations as well as the amount of capital potentially affecting what licenses/permits the company can obtain, or what public benefits/assistance the company can seek, it is recommended that you obtain professional advice about the initial amount to be invested as capital.
Assuming the foregoing, the K.K. will need to appoint at least 1 director.
If the K.K. has 2 or more directors, it can choose 1 director to be the representative director who will be the executive officer with the right to represent the company and do all acts in relation to the company.
If no representative director is chosen, then each director has the power to represent the company.
If the company has 3 or more directors, then it has the option to have a board of directors.
Directors must have a term between 1 to 10 years.
If the company chooses to have a board of directors, then it must have at least 1 company auditor, who will serve for a term of 4 years.
Please feel free to reach out to us if you are interested in doing business in Japan, and would like to learn more.
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