[ESTABLISHING A BUSINESS ENTITY IN JAPAN]
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who plan to have the company go public on the stock exchange would not choose a GK. A KK is also preferred by smaller businesses, as a KK has conventionally been considered to be perceived as having higher social credibility. On the other hand, if the investors are not interested in mass fundraising or in becoming publicly listed, a GK is also a viable option. Considering that the corporate governance systems that a GK is required to comply with are simpler (e.g., a Board of Directors system is not required even where a GK has a large amount of assets), a GK could be a better option for a foreign parent company. Typically, a foreign parent company becomes the sole member of its subsidiary GK so that it can directly control it. Especially, if the foreign parent company is located in a jurisdiction where its home country’s tax regulations treat a Japanese subsidiary GK as an entity for which pass-through tax treatment is applicable, such a foreign parent company would benefit from choosing a GK (see Section 2.3 above). While a branch can be established relatively easily, a company format is more frequently chosen by foreign investors. One of the reasons behind this seems to be that a branch is not a separate entity, and the foreign parent company is directly responsible for the branch’s liabilities. Also, it is sometimes said that a company format (a KK or GK) tends to be perceived as showing the foreign parent company’s stronger commitment to Japan market, and as
such any domestic Japanese parties transacting with the subsidiary company would feel more easily able to rely on them (compared to a branch).
3. Steps and Timing to Establish 3.1 Brief overview of
steps
to
incorporate/constitute each 3.1.1 Joint-stock company (KK)
To incorporate a joint-stock company (kabushiki kaisha, “KK”), (i) incorporators prepare the Articles of Incorporation of the company (Art. 26, Companies Act), (ii) incorporators have the Articles of Incorporation notarized by a notary public (Art. 30), (iii) incorporators each pay an incorporator’s contribution with respect to the shares for which the incorporator has subscribed (Art. 34), (iv) incorporators elect the officers (such as directors) of the company (Art. 38), and (v) a director applies for the registration of incorporation with the Legal Affairs Bureau. When the registration of incorporation is completed, a joint stock company (KK) is legally formed (Art. 49).
3.1.2 Limited Liability company (GK)
To incorporate a limited liability company (godo kaisha, “GK”), (i) incorporators prepare the Articles of Incorporation of the company (Art. 575, Companies Act; this is analogous to the procedures for the formation of a KK, but in the case of a GK, notarization of the Articles of Incorporation is not required),
ILN Corporate Group – Establishing a Business Entity Series
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