Commercial Corporation
Before starting a company of any kind, make sure your visa status permits it. It must be clear that foreign nationals in Japan must have a visa status that corresponds with their purpose of stay in Japan. Those who have a legal status as a permanent resident, long-term resident, a spouse or child of Japanese national, or a spouse or child of a permanent resident may start a business in Japan. The information below has been simplified and should only be used as a guide.
The second type of company we will look at is the Eiri-Houjin or Commercial Corporation, for profit. There are four types of Eiri-Houjin, we will describe all four, but only explain how to start two of them.
The second type of company we will look at is the Eiri-Houjin or Commercial Corporation, for profit. There are four types of Eiri-Houjin, we will describe all four, but only explain how to start two of them.
Eiri-Houjin (Commercial Corporation): An organization which aims to earn profit through its operations and concerned with its own interests. In Japan, there are four types or business entities; Gomei-Kaisha (General Partnership Company), Goshi-Kaisha (Limited Partnership Company), Godo-Kaisha (Limited Liability Company), and Kabushiki-Kaisha (Stock Company).
Advantage:
2. It is advised to hire a shihoushoshi or judicial scrivener, to prepare and submit the documents. This adds extra cost, but is highly advised.
3. Corporate accounting normally requires a certified public accountant to submit tax documents. This adds extra costs, but is highly advised.
4. Corporations are required to provide health insurance and pension plans to employees. This adds a significant cost per employee.
Advantage:
1. Multiple partners can join together to start a company and pool resources.
2. It is easier to obtain credit or borrow money from financial institutions.
3. Corporate taxes may be lower than progressive tax rates depending on the amount of taxable income.
4. A variety of business expenses are approved as tax deductible, lowering taxed income.
5. Social credibility is higher. Thus, landlords, vendors, customers, and clients are more likely to trust you and do business with you.
Disadvantage:
1. It takes longer to establish a corporation and the cost is much higher.
2. It is easier to obtain credit or borrow money from financial institutions.
3. Corporate taxes may be lower than progressive tax rates depending on the amount of taxable income.
4. A variety of business expenses are approved as tax deductible, lowering taxed income.
5. Social credibility is higher. Thus, landlords, vendors, customers, and clients are more likely to trust you and do business with you.
Disadvantage:
1. It takes longer to establish a corporation and the cost is much higher.
2. It is advised to hire a shihoushoshi or judicial scrivener, to prepare and submit the documents. This adds extra cost, but is highly advised.
3. Corporate accounting normally requires a certified public accountant to submit tax documents. This adds extra costs, but is highly advised.
4. Corporations are required to provide health insurance and pension plans to employees. This adds a significant cost per employee.
Types of Corporations
A. Gomei-Kaisha (General Partnership Company): It consists of partner(s) whose liabilities are unlimited to the creditors of the company.
Advantage:
1. It requires only one person to start a business.
2. Paperwork and processing are relatively easy and the total establishing cost is low.
3. Decision making is easy as the operator is usually the investor.
Disadvantage:
1. Your liability is unlimited, making it possible to lose your personal assets.
2. Social credibility is relatively low.
3. This type of company is not suitable if you have plan on making the company bigger.
Advantage:
1. It requires only one person to start a business.
2. Paperwork and processing are relatively easy and the total establishing cost is low.
3. Decision making is easy as the operator is usually the investor.
Disadvantage:
1. Your liability is unlimited, making it possible to lose your personal assets.
2. Social credibility is relatively low.
3. This type of company is not suitable if you have plan on making the company bigger.
B. Goshi-Kaisha (Limited Partnership Company): It has a partnership with at least one general partner with unlimited liability and other partner(s) with limited liability. Partnership is not taxed but partners have to pay taxes on profits allocated.
Advantage:
1. Paperwork and processing are relatively easy and the total establishing cost is low.
Advantage:
1. Paperwork and processing are relatively easy and the total establishing cost is low.
2. Decision making is relatively easy as only the partner with unlimited liability has governance.
Disadvantage:
1. It requires at least two people to start, with at least one partner with unlimited liability.
2. Social credibility is low.
3. This type of company is not suitable if you have plan on making the company bigger.
Disadvantage:
1. It requires at least two people to start, with at least one partner with unlimited liability.
2. Social credibility is low.
3. This type of company is not suitable if you have plan on making the company bigger.
C. Godo-Kaisha (Limited Liability Company): As this is a new type of corporate entity which was introduced in 2006, it is unfamiliar to many people. However, it allows a company to be established easily and quickly with lower cost than Kabushiki-Kaisha, the number of Godo-Kaishai has been gradually increasing, but is still less than 20% of companies started.
Advantage:
1. The registration process is simpler and less expensive than Kabushiki-Gaisha.
2. Limited liability to all unitholders, meaning personal assets are protected.
3. Major business decisions can be made without formal proceedings.
4. Unitholders can invest any type of asset to receive units in the company. For example, land, property, know-how, knowledge, etc., can all have a value decided and units allocated.
5. Post-tax profits can be distributed unevenly according to the rules in its Articles of Incorporation. Meaning, the amount of units owned does not necessarily determine the amount of profit received.
Disadvantage:
1. Godo-Kaisha is a new type of corporate entity, so it has less credibility than Kabushiki-Kaisha.
2. Cannot go public and list on a stock exchange.
3. Cannot sell shares or issue stock options to raise capital.
4. The number of units owned does not determine power of voting, thus a small unitholder has equal voting power as a major unitholder on major decisions.
5. Unitholders are considered directors, unless otherwise stated in the Articles of Incorporation.
6. All unitholders must unanimously consent to amendment of the Articles of Incorporation.
7. All unitholders must unanimously consent to any transfer of company ownership.
Advantage:
1. The registration process is simpler and less expensive than Kabushiki-Gaisha.
2. Limited liability to all unitholders, meaning personal assets are protected.
3. Major business decisions can be made without formal proceedings.
4. Unitholders can invest any type of asset to receive units in the company. For example, land, property, know-how, knowledge, etc., can all have a value decided and units allocated.
5. Post-tax profits can be distributed unevenly according to the rules in its Articles of Incorporation. Meaning, the amount of units owned does not necessarily determine the amount of profit received.
Disadvantage:
1. Godo-Kaisha is a new type of corporate entity, so it has less credibility than Kabushiki-Kaisha.
2. Cannot go public and list on a stock exchange.
3. Cannot sell shares or issue stock options to raise capital.
4. The number of units owned does not determine power of voting, thus a small unitholder has equal voting power as a major unitholder on major decisions.
5. Unitholders are considered directors, unless otherwise stated in the Articles of Incorporation.
6. All unitholders must unanimously consent to amendment of the Articles of Incorporation.
7. All unitholders must unanimously consent to any transfer of company ownership.
D. Kabushiki-Kaisha (Stock Company): It is the most widely-known and common form of corporate entity. It is a legal form of business that is separated from the owners. Its starting capital is established by the shareholders.
Advantage:
1. Has the highest social credibility among the types of corporations.
2. Easier to borrow money and obtain financing.
3. Can sell shares, stock options to raise capital.
4. Limited liability to all shareholders.
5. Easy to expand the business.
6. Greater accountability as business reports must be created and made available to shareholders.
7. Many types of expenses are tax-deductible.
Disadvantage:
1. It takes a longer time to prepare all the documents to create the company.
2. It costs the most to create the company.
3. Decision making can be slow and/or difficult.
4. Has more government restrictions concerning buying or selling companies.
Advantage:
1. Has the highest social credibility among the types of corporations.
2. Easier to borrow money and obtain financing.
3. Can sell shares, stock options to raise capital.
4. Limited liability to all shareholders.
5. Easy to expand the business.
6. Greater accountability as business reports must be created and made available to shareholders.
7. Many types of expenses are tax-deductible.
Disadvantage:
1. It takes a longer time to prepare all the documents to create the company.
2. It costs the most to create the company.
3. Decision making can be slow and/or difficult.
4. Has more government restrictions concerning buying or selling companies.
Which should you choose?
Given all the advantages and disadvantages of the four types of corporations, you should choose either Godo-Kaisha or Kabushiki-Kaisha. It is possible to change to/from either Godo-Kaisha and Kabushiki-Gaisha, but the process is not simple and costs money. Consult with a lawyer or judicial scrivener about which is best for your situation.
Given all the advantages and disadvantages of the four types of corporations, you should choose either Godo-Kaisha or Kabushiki-Kaisha. It is possible to change to/from either Godo-Kaisha and Kabushiki-Gaisha, but the process is not simple and costs money. Consult with a lawyer or judicial scrivener about which is best for your situation.
How to establish Godo-Kaisha or Kabushiki-Kaisha
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