Differences between a Joint Stock Company (Kabushiki Kaisha=Kabushiki Gaisha=株式会社) and a Limited Liability Company(=Godo Kaisha=Godo Gaisha=合同会社)
The choices you have when forming a company in Japan are either a Joint Stock Company or a Limited Liability Company.
Here is a summary of the legal differences between a joint stock company and a limited liability company.
● owners and managers of the company
〇 In the case of Joint Stock Company.
In principle, owners and managers are separated. The owners of the company are the shareholders, and the managers are the directors and other officers.
The shareholders own the company and the directors, who are elected by the shareholders, manage the company. Non-shareholders can also be directors. Of course, a shareholder can also be a director. This is the sitution in many cases.
△ In the case of limited liability company
In principle, the owner and the manager are the same person.
The investor (corresponds to a shareholder in a stock company. But they are also called employees (社員=Shain). But it is not an employee. It is complicated even for Japanese.
Japanese language “社員”has two meanings. One means shareholder of Limited Liability Company and another is employee of company.
In most of cases, 社員 means employee of a company. Because, most of persons will not talk about law of Japan.
In the case of Limited liability company (=LLC), the investors own the company and manage it with the right to execute business and represent the company.
In the articles of incorporation, the investors (founders) can determine, elect the executive members (corresponding to directors of a stock company) and representative members (corresponding to representative directors of a stock company).
So, it can also take the form of a company with employees who do not have the right to execute business affairs (i.e., who are not directors).
In this case, there is almost no difference from a stock company.
● About Liability of investors
Neither a joint stock company nor a limited liability company is liable to the company’s creditors for more than they have invested.
For example, you have invested 10000 yen and incorporated a company.
The company has hired an employee. However, the company’s business did not go well and the company had no money.
And it could no longer pay salaries to the employee. In this case, the employee is the company’s creditors.
In this case, even if the investor (=you. Even if you are director of the company) have money, you are not legally obligated to pay salary to the employee.
There was (is) a terrible English conversation school a long time ago that did not pay its employees in this way.
Sales amount of the company in 2021 was about 50,000,000,000 yen.
●Term of office of directors
〇The term of office of the directors of a stock company is a maximum of 10 years.
(This must be stipulated in the articles of incorporation.)
However, in a company that does not require corporate approval for the transfer of its shares, the maximum term is two years.
△In the case of a limited liability company, there is no term of office for members (directors).
(By the way, in the case of General Incorporated Association (similar to NPO), term of office is 2 years.)
△However, it is possible to stipulate the term of office for managing partners and representative partners if it is decided in the articles of incorporation.
However, we have never seen a limited liability company do such a cumbersome thing.
● Method of deciding important matters
〇 In the case of a stock company, important matters are decided at a general meeting of shareholders（株主総会）. Even if you are the only investor (shareholder), a shareholders’ meeting is formally held.
△ In the case of a limited liability company, in principle, decisions are made by a majority of all investors. If there are two investors and their opinions conflict, it will be impossible to pass a resolution. Alternatively, the articles of incorporation can require a majority of the managing partners to decide the resolution.
△ The articles of incorporation may also stipulate that your approval is always required.
〇 A stock company must have a general meeting of shareholders and can have a board of directors, auditors, and other organizations.
△ In a limited liability company, there is no such requirement. In a limited liability company, the investors discuss and decide on the organization. If the articles of incorporation stipulate it, it is possible to set up a general meeting of members（社員総会） or other organizations.
If there are many investors, such an organization may be established.
● Ordinary General Meeting
〇 A stock company must hold an ordinary general meeting of shareholders at a fixed time after the end of each fiscal year (one year).
The shareholders then approve the accounting documents and other items.
△ Limited liability companies are not required to hold an annual general meeting.
〇 In the case of a joint-stock company, minutes(議事録) must be prepared after the shareholders’ meeting and kept at the head office for 10 years.
△ In the case of a limited liability company, there is no obligation to prepare minutes. However, they may need to be prepared for tax reporting and other purposes.
When remuneration of directors and officers is decided, it is necessary to keep evidence of the decision.
● Public notice of financial statements
〇 In the case of a joint stock company
After the shareholders approve the financial statements (balance sheet, etc.), the balance sheet must be publicly announced without delay. In practice, however, many companies do not do so.
△ In the case of a limited liability company, there is no obligation to publicly notify the financial statements.
● Registration tax for incorporation
〇 A minimum of 150,000 yen is required for a joint stock company. In addition, about 52,000 yen is required as remuneration for a notary public.
△ In the case of a limited liability company, the minimum registration tax is 60,000 yen.
No fee is required for the notary.
If you need assistance with Japanese laws and taxes, please contact akiyama(a)japan-law-tax.com