What are the different forms of companies in Japan?
The Japanese word for company is kaisha 会社 (often gaisha when part of a compound word). There are four kinds of companies in Japan: corporations (kabushiki-gaisha 株式会社), LLCs (goudou-gaisha 合同会社), general partnerships (goumei-gaisha 合名会社), and limited partnerships (goushi-gaisha 合資会社). Also there is one form no longer used but still relevant and so will be discussed below.
Corporations (kabushiki-gaisha 株式会社)
One big advantage of this type is that stocks can be traded on the open market, but they don’t necessarily have to though. In fact, the vast majority of corporations are not traded on the open market and are of small to medium size. There are also more rules to follow than other forms of companies and are more expensive to establish. These additional restrictions can work in a companies favor though, because corporations are more well known in society and may be viewed as more trustworthy than other forms.
Limited Liability Companies (goudou-gaisha 合同会社)
LLC is probably the best option for most cases. This form wasn’t established until 2006, replacing yugen-gaisha, so it’s not yet well known by society. Liability is limited, it is cheaper to register, and there are fewer restrictions compared to a corporation. Stock in the company can not be traded in the open market however, making raising capital possibly more difficult for larger capital needs. Since LLCs are still new and unfamiliar to most Japanese, most people still choose to establish as a corporation despite the extra cost and time involved.
General partnerships (goumei-gaisha 合名会社)
Although in the English name for this form has the word “partnership”, this form no longer requires partners and can be formed with a single person. It is a little bit cheaper to establish than an LLC, but the downsides far outweighs this fact. This form is not recommended because owner liability is not limited.
Limited partnerships (goushi-gaisha 合資会社)
This form requires at least two partners to establish. Like the GP above, this form is relatively cheap to register as a company, but because of the unlimited liability for owners, this form is not recommended.
Discontinued type: yugen-gaisha 有限会社
Yugen-gaisha 有限会社 was discontinued in 2006 and replaced by goudou-gaisha 合同会社. As part of legal reforms of corporate law, this form of company was discontinued and pre-existing companies were reclassified as tokurei-yugen-gaisha 特例有限会社, a sub-type of a corporation (kabushiki-gaisha). The commonly used English translation of yugen-gaisha is LLC, so this is confusing because the new form that replaced it, goudou-gaisha, is also translated as LLC. Many of the pre-existing companies still use the name yugen-gaisha because they aren’t forced to change it, but technically they are no longer yugen-gaisha.
Why bother forming a company?
There are lots of reasons to form a company when starting a business. Perhaps the most important reason is to limit the liability of the owners, although as you can see from the above, not all forms of companies limit liability. If you are thinking of starting a company we strongly recommend you to form either a corporation or an LLC. Please contact us for assistance on registering and establishing your company.
If you already own a company and are looking to expand into Japan, two popular choices are to open a branch or to establish a subsidiary. See our FAQ for some information on the differences between the two.