Starting a business in Japan can be an exciting opportunity, but it also involves making important decisions regarding the type of organization to establish. Two of the most common options are Kabushiki Kaisha (KK) and Godo Kaisha (GK). Understanding the differences between the two is crucial in order to make the best choice for your business.
In this blog post, we aim to comprehensively compare KK and GK, highlighting the key differences and similarities. From the legal structure and ownership to the liabilities and tax implications, we will delve into each aspect to give you a clear picture of each option.
KK makes up around 80% of all registered corporations and is much more prevalent than the GK. However, it’s crucial to keep in mind that none is “better” than the other; each has benefits and drawbacks to take into account.
SIX MAIN DIFFERENCES BETWEEN KABUSHIKI KAISHA (KK) VS GODO KAISHA (GK)
Here is our list of essential factors to assist you in determining the kind of organization that will work best for you –
The fact that the KK has been in existence for more than a century may give it a greater level of legitimacy than a GK in the eyes of your Japanese clients, staff, and business partners. However, in recent years multiple MNC’s like Amazon, Apple, and ExxonMobil have been setting up a GK instead.
Hence unless your stakeholders specifically require you to set up a KK for legal reasons, you can benefit from a GK. KK is more suitable for larger and more established companies, while GK is more appropriate for small and newly established businesses.
With a KK, the lines between ownership (shareholders) and management (directors) are very distinct. Shareholders GK, on the other hand, are regarded as partners who assist in running the business, and the size of their investment does not always correspond to the same level of authority or voting rights over the business. In principle, shares in a Kabushiki Kaisha (KK) can be freely transferred.
However, the articles of incorporation may stipulate that the transfer of shares requires the approval of the Board of Directors. In a Godo Kaisha (GK), the transfer of shares requires the unanimous approval of all equity participants (members).”
With the ability to create a Board of Directors, list on the stock exchange, and raise extra funds by selling shares, among other things, a KK enables a scalable company. In comparison, none of these things are possible for the GK. In terms of scalability, KK offers far more flexibility and benefits.
A KK generally has higher corporate tax rates compared to GK. A KK may be eligible for tax benefits such as special tax treatment for small and medium-sized enterprises and accelerated depreciation. In General, a KK qualifies for the foreign tax credit system, allowing the company to offset taxes paid abroad against Japanese taxes.
A GK has a Lower corporate tax rate compared to KK. A GK may be eligible for tax benefits such as special tax treatment for small and medium-sized enterprises, simplified taxation for small businesses, and deductions for capital investments. A KK does not qualify for the foreign tax credit system.
While KKs have a wide range of alternatives for corporate governance structures, many small and mid-sized firms elect to use a board of directors and a statutory auditor as their governance structure. During the shareholders’ meeting, A KK must elect a statutory auditor and a minimum of three directors to maintain this arrangement.
The company’s representative director is then chosen by the board of directors, which is made up of elected directors. A KK must appoint at least one resident director. To create a GK, only one director is required and there are no resident director requirements.
Compared to KKs, the GK registration procedure and continuing corporate compliance are less complicated and expensive. For instance, KKs must pay more registration taxes than GKs in order to be lawfully established (JPY 150,000 for KK and JPY 60,000 for GK). Additionally, KKs are required to publish financials, hold shareholders’ meetings, and submit other reports every year, but GKs are not.
Suppose a KK is set up with a board of directors. In that case, additional compliance is necessary, including holding a board of director meetings and recording minutes as well as appointing a statutory auditor (this is a named individual, not an audit company), who is in charge of KK’s financial integrity and is required to submit an auditor report at the end of the year.
Each year, additional legal support expenses are incurred due to all these requirements. Without a board of directors, your annual compliance costs would increase by JPY 200,000 to 300,000 (USD 2,000 to 3,000). This cost increases if you have a board of directors.
SIMILARITIES BETWEEN KABUSHIKI KAISHA AND GODO KAISHA
There are several similarities between Kabushiki Kaisha and Godo Kaisha.
- Limited Liability: Both KK and GK provide limited liability to the shareholders, meaning that their personal assets are protected in the event that the company is unable to pay its debts.
- Separation of Ownership and Management: The management of a KK or GK is separate from the ownership, allowing shareholders to participate in the profits without being involved in the day-to-day operations of the company.
- Flexibility in Management: Both KK and GK have a degree of flexibility in terms of management, with the option to appoint directors, supervisors, and officers as needed.
- Compliance Requirements: Both KK and GK are required to comply with various legal and regulatory requirements, including the preparation of financial statements, holding of annual meetings, and filing of annual tax returns.
- Ability to Raise Capital: Both KK and GK have the ability to raise capital through the issuance of shares, providing access to new investment and funding opportunities.
The KK structure is still more common and has higher financial standing in Japanese corporate culture. However, GKs have gained more popularity in recent years. Most foreign investors believe that choosing a GK is safer and prefer it over a KK in terms of the costs involved.
However, depending on your business objectives, there may be advantages to choosing a KK. Therefore, in general, neither is superior to the other. Nevertheless, depending on your business goals, one may be better for you.