Law for Management of LLC in Japan
In this page, I would like to inform you of legal information relating to LLC in Japan.
In Japan, LLC is often called GK and GK is Godo Kaisha = 合同会社.
When one person operates LLC, this kind of information is not so important.
However when two persons operate LLC and they are not relatives each other, this information will be necessary to avoid future conflict.
As for tax and LLC
There is not difference between KK company and LLC.
In the case of LLC in Japan, pass-through tax treatment is not applicable.
So assumed that X LLC makes profit of 100 yen and it pays 100 yen as dividend to Mr.L.
In this case corporation tax etc. is levied on 100 yen before payment of dividend and Mr.L also needs to pay income tax for 100 yen.
LLC does not need to give public notice of its financial result every year.(unlike KK company)
Voting right of Members/Directors of LLC
In the case of LLC, when you (Shareholder, Director) determine something, consent of all of you are necessary.
However it is a default rule stipulated by company act.
Actually in the case of LLC, almost all arrangements are possible if it is stipulated in articles of incorporation.
LLC may stipulate in its articles of incorporation that each shareholder (member) can be treated differently with respect to payment of dividend.
So if there is not such article in articles of incorporation, dividend should be paid based on amount of capital contribution.
Assumed that Mr.L and Mr.S contributed 100 yen to incorporate LLC.
And when the company has made profit of 600 yen and pays dividend of 600 yen to shareholders, Mr.L and Mr.S can receive 300 yen each.
It is the default rule.
However if articles of incorporation stipulates that Mr.L can receive double amount of dividend compared to Mr.S, it is acceptable.
When members determine something, the number of voting right coincide with the number of persons basically.
It does not coincide with the amount of capital contribution.
So even if Mr.L contributed 100 yen and Mr.S contributed 50 yen to incorporate the LLC, the number of their voting right is equal.
However it is possible that articles of incorporation stipulate other arrangement as below.
Assumed that Mr.L (capital contribution) 100 yen
Mr.S capital contribution 50 yen
“Each member has one voting right for each contributed amount of 50 yen”
If there is a such stipulation in articles of incorporation, Mr.L has major voting right.
Mr.L or Mr.S cannot assign all or part of his equity interests to others without the approval of all other partners (default rule).
In order to change content of articles of incorporation, the approval of all other partners is necessary basically.
And name and address is inscribed in article of incorporation.
However it is possible that articles of incorporation stipulate other arrangement.
So, it can provide that “When Mr.L agrees it, other person can become member of this LLC without consent of Mr.S”.
Even legal entity can become member and managing partner, representative partner.
So, assumed that L corporation and S corporation hope to start joint venture, they can incorporate LLC.
Both of them can become member (shareholder of LLC) and director (Managing partner of LLC) and they can control the LLC directly.
(In the case of KK Company, it is not possible)
Withdrawal from Member of LLC
If Mr.L or Mr.S hopes to leave the LLC, it is possible.
But he needs to give advance notice to LLC more than six months in advance and he can leave the LLC at the end of business year.
However if the duration of LLC is provided by the articles of incorporation, he can not use this advance notice.
So he can not leave the company even if he gives advance notice. (And as always it is just a default rule)
However if there are any unavoidable reason(enormous change of situation of company etc), he can leave the company at any time without advance notice.
On the other hand, it is possible to stipulate that Mr.L can not leave the company for ten years.
Determination of important matters
In order to determine important matters, consent of all members is necessary.
For example, Location of company (Minato-ku, Tokyo) should be stipulated in articles of incorporation.
So when LLC changes location of company, it needs to change articles of incorporation.
So it requires consent of all members basically.
Then if Mr.S does not agrees it, Mr. L can not change location of the LLC.
As for this matter, as always it is possible to stipulate other arrangement if it is stipulated in articles of incorporation.
ex. If Mr.L determines, articles of incorporation can be changed.
Refund of capital contribution
If Mr.L and Mr.S make conflict and can not manage the company normally, Mr.L or Mr.S can leave the company with six months advance notice unless otherwise provided.
And he will receive refund of capital contribution.
So when they incorporate LLC, they can determine amount of refund or method of calculating for such amount.
ex. When a member withdraw this LLC, he can receive refund of capital contribution based on proportion of money invested by him.
Net asset of LLC as of Mr.L’s withdrawal. 300 yen.
100/(100+50) * 300 = 199 yen.
Compulsory removal of Member of LLC
If Mr.S is member(shareholder), but he is not managing partner nor representative partner, his name is not registered in commercial registry.
If Mr.L hopes to remove Mr.S from LLC without Mr.S’s consent, he can files his removal with court house. (as far as there is a specific reason provided by law)
As for this Removal, articles of incorporation can not exclude.
As for liability of managing partner
If Mr.L is managing partner (業務執行社員) and he is grossly negligent in discharging his duties and caused damage toward third party, he is liable to compensate losses arising in a third party as a result.
So when you become a director of LLC, you can deliberate it in advance.
In the case you are member (shareholder) , but you are not managing partner, this kind of liability is not applied.
Obligation of Managing Partner of LLC
In the case Mr.L is managing partner (業務執行社員), he can not carry out business that is similar business of the LLC.
So if Mr.L is Managing partner of XYZ LLC and purpose of the XYZ LLC is software development, he can not carry out software development for himself and other person.
And Mr.L can not assume director or Managing partner of other company who business purpose is similar to XYZ LLC.
However he can do that if all other members of XYZ LLC approves it or articles of incorporation approves it.
A member of company can claim dissolution of LLC by filing an action
Where there are unavoidable circumstances, reasons, a Member of LLC can claim dissolution of the LLC by filing an action toward court house.
For example, Mr. operates the LLC unfaithfully and Mr. S can not solve the problem in other way.
In that case MR.S can request court house to issue Judgement that orders the LLC to dissolve it.