SERIES 1-01：Types of Companies and Legal Entities in Japan

1. Introduction: Choosing a Legal Entity When Entering Japan

When starting a business in Japan, one of the first decisions you need to make is which legal entity to use.　Each structure comes with different implications in terms of legal liability, rights and obligations of investors, credibility with counterparties, and ongoing running costs.

Overview of Main Legal Entity Types in Japan

Category	Form	Scope of Liability	Registration	Key Features
Corporate Forms	Kabushiki-Kaisha(KK)	Limited liability	Required	Most common form; clear governance and high credibility.
Corporate Forms	Godo-Kaisha(GK)	Limited liability	Required	Similar to a US LLC; allows flexible internal structure and is also suitable for small-scale businesses.
Collective Investment Schemes	Tokumei-Kumiai(TK, Anonymous Partnership)	Limited liability	Not required	Contract under which the business operator and each investor enter into a one-to-one agreement to share profits from the business.
	Nin’i Kumiai（Voluntary Partnership）	Unlimited liability	Not required	All investors become partners and enter into a mutual partnership agreement with one another.
	Limited Partnership for Investment (LPS)	General partners (GPs): unlimited liability; Limited partners (LPs): limited liability	Required	Special type of partnership in which some partners enjoy limited liability; mainly used when forming venture capital and private equity funds.
	Limited Liability Partnership (LLP)	All partners have limited liability	Required	Premised on all partners jointly conducting the business; decisions on important matters generally require the consent of all partners.

In practice, collective investment schemes using partnership-type structures are often adopted to obtain tax advantages. However, where funds are raised from investors in such schemes, a number of regulatory issues arise—for example, registration as a Type II Financial Instruments Business under the Financial Instruments and Exchange Act may be required. Because of these regulatory and practical considerations, when foreign companies consider expanding into Japan, the two structures most commonly examined in reality are: the Joint-Stock Company (KK), and the Limited Liability Company (GK).

The following sections focus on the differences between these two, from a practical business perspective.

2. Key Structural Differences: KK vs. GK

The Kabushiki Kaisha (KK) features a separation of ownership and management. Shareholders typically do not manage the business directly; this role is fulfilled by directors, with shareholders voting on key issues. This arrangement makes it easier to attract external investors and build a clear governance structure.

Conversely, the Godo Kaisha (GK) combines ownership and management. Generally, all investors (partners) have management rights. This is similar to the US LLC structure. Although highly flexible, this can sometimes result in time-consuming decision-making or complicated internal dynamics if there are multiple investors.

Category	Kabushiki Kaisha (KK)	Godo Kaisha (GK)
Concept	A stock company that raises capital by issuing shares.	A concept similar to a US LLC or LP.
Ownership	Shareholders own shares.	Members (partners) own equity interests.
Liability	Limited liability (limited to the amount of investment).	Limited liability (limited to the amount of investment).
Management	Managed by Directors or a Board of Directors (depending on company size). Separation of ownership and management is possible.	In principle, members participate directly in management (Executive Members can also be appointed).
Capital	No minimum capitalrequirement.(Previously 10 million JPY, but this rule has been abolished.)	No minimum capital requirement.
Decision Making	Statutory bodies and procedures are required (e.g., Shareholders’ Meeting, Board of Directors).	Internal rules can be set freely via the Articles of Incorporation.

3. Which Should You Choose? A Practical Comparison

A Godo Kaisha (GK) is characterized by low incorporation costs, flexible articles of incorporation, and simple operational requirements. This makes it suitable for small businesses, sole proprietorships looking to incorporate, and Japanese subsidiaries of foreign companies.　

However, for businesses involving multiple investors, a Kabushiki Kaisha (KK) is recommended. A KK allows for a clearer governance structure and decision-making based on shareholding ratios. It also enjoys higher credibility with external investors and financial institutions. Consequently, a KK is more advantageous for future fundraising.

Unless there is a specific reason to do otherwise, choosing a KK offers greater benefits in terms of governance, financing, and credibility.

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