#business setup

Setting up a Godo Kaisha

practical guide that explores the advantages and disadvantages of Godo Kaisha, along with an overview of the incorporation process.

By Saki Nakahara, Gyoseishoshi Lawyer
Last Updated: December 8, 2023

When starting a business in Japan, one of the first questions that aspiring entrepreneurs need to find an answer for is: “Godo Kaisha or a Kabushiki Kaisha? Which is right for my business?”

To help you make an informed choice, we have prepared a practical guide that explores the advantages and disadvantages of Godo Kaisha, along with an overview of the incorporation process.

*The information provided in this article is a general guide and not tailored to individual circumstances. For personalized advice and assistance with your specific business set-up process/visa application, it is recommended to consult a specialist.

What is a Godo Kaisha?

A Godo Gaisha, or Godo Kaisha, commonly abbreviated as G.K., is a business organization in Japan governed by the Companies Act introduced in 2006.

Inspired by the American limited liability company, it is often referred to as the ‘Japanese LLC.’ While there are similarities between American LLCs, it doesn’t offer the same tax benefits as those seen in American LLCs. Godo Kaisha is a type of entity preferred by business owners who prefer easy set up and speedy decision making process.

Unlike Kabushiki Kaisha, where investors and managers of the company are separated (in Kabushiki Kaisha, directors are commonly voted by the shareholders, instead of shareholders making decisions for business operations together themselves), in Godo Kaisha, investors are the members and directors of the company, allowing them to move quickly in their business operations.

Godo kaisha's increasing popularity

The number of incorporated Godo Gaisha increased by 36.1%

The number of Godo Kaisha being registered every year is increasing. According to the data published by Portal Site of Official Statistics of Japan, between 2017 and 2022, the number of incorporated Godo Gaisha increased by 36.1% from 27,270 to 37,127, as you can see in the chart below.

Godo Kaisha used to give people impressions is that it is for small to medium sized companies, and as less credible compared to Kabushiki Kaisha, but it is gaining more recognition as major companies like Apple and Amazon have converted to Godo Kaisha.

Number of Godo Kaisha Registered Every Year from 2019 to 2022. [Reference: e-Stat, Portal Site of Official Statics of Japan]

Here are the main advantages of Godo Gaisha:

Limited liability
The setup process is straightforward and requires less time than K.K.
Lower set-up and running costs
Flexibility in management by changing Articles of Incorporation
Tax Benefits – In addition to the expenses that individual sole proprietors can include, corporations can also account for costs such as salaries and bonuses as expenses

Here are the main disadvantages of Godo Gaisha:

Not as widely considered credible as K.K. Japanese corporations, generally larger ones, tend to prefer Kabushiki Kaisha for their higher credibility
Lack of the ability to go public
Each individual’s vote counts as one, regardless of the investment ratio. Consequently, conflicts or disagreements among company shareholders/members could slow down the decision-making process and company operations

See below a summarized chart comparing Godo Kaisha and Kabushiki Kaisha.

	Kabushiki Kaisha (KK)	Godo Kaisha (GK)
Definition	Stock Company	Limited Liability Company
Initial Setup Cost*	¥ 300,000 - ¥500,000	¥200,000 - ¥300,000
Profit Sharing	Profits will be shared according to the ratio of investment	Profit sharing will not be restricted by the ratio of investment
Governance Structure	Clear distinction between shareholders and directors	Partners own and manage the company
Financial Statements	Publication required	Publication not required
Incorporation Process Timeline**	2-3 weeks	1-2 weeks
Credibility	Renowned and highly regarded form of company in Japan	Not seen as credible as KK in Japan, but gaining recognition in recent years

*The initial setup cost varies depending on the level of bilingualism required, the extent of assistance needed, and the complexity of paperwork involved.

**At Small Seasons & Co, we prioritize the quality of our services, and thus, we kindly request our clients to contact us at least three weeks before the intended date of business incorporation.

Step 1. Determine key details for your company

Decide on essential elements such as the corporate name, head office location, office type, main business activity, fiscal year, and more.

Step 2. Obtain a corporate seal

Prepare the corporate seal as you will need it for the company registration process, once the company name is decided.

Step 3. Draft the Articles of Incorporation (Teikan)

This document will act as a rulebook for your company. Ensure it includes all business activities, including those that may require specific licenses, such as secondhand dealerships and sales of alcoholic beverages. If you have a partner, take this chance to align on company goals and the direction to advance together!

Step 4. Deposit the initial capital in a personal bank account

Transfer the agreed-upon initial capital, as stated in the Articles of Incorporation, to the personal bank account of one of the founders. A corporate bank account can only be opened after completing company registration.

Step 5. Prepare the required paperwork for corporate registration

In addition to the registration form, arrange personal seal certificates and other necessary documents.

Step 6. Apply for incorporation registration at the Registry Office

Submit the necessary documents for incorporation registration.

Step 7. Notify relevant authorities

Inform the pension office, local tax office, and labor inspection office about your new company. Depending on your business scale, consider consulting specialists in each field for assistance.

Step 8. Open a corporate bank account

After completing the company registration, proceed to open a corporate bank account. As opening a corporate bank account in Japan can be challenging, consult with the bank earlier in the establishment process to confirm requirements.

Entity conversion

You can convert from Godo Kaisha to Kabushiki Kaisha in the future

If you are considering establishing a Godo Kaisha now with future plans of converting to a Kabushiki Kaisha, rest assured, it’s a viable option. The decision depends on factors such as your business plan, budget, and aspirations.

The process of converting a Godo Kaisha into a Kabushiki Kaisha involves several steps, including outlining key details such as the corporate name, business purpose, head office location and so on. If you wish to make any changes, this is the time to do so.

All employees must agree to the conversion, and the company must notify creditors through the official gazette and individual notices, allowing a one-month objection period. Upon the effective date specified in the plan, necessary documents are gathered and submitted for registration.

These documents include the organizational change plan, articles of incorporation, consent letters, director-related documents, and others as required.

Is it a smart move?

While not a simple process, it presents a viable option for your business’s future trajectory. With careful planning and consideration, transitioning from Godo Kaisha to Kabushiki Kaisha can be a strategic move to support your long-term growth and success.

When launching your business in a foreign country, finding a trustworthy partner becomes crucial, especially when navigating the complex and bureaucratic processes in Japan. Securing the right legal advisor is vital for receiving invaluable and reliable guidance.

At Small Seasons & Co., we specialize in providing comprehensive business setup services. Our team is fully bilingual and proficient, ensuring a seamless and efficient handling of your case.

By Saki Nakahara, Immigration Lawyer
Last Updated: December 8, 2023

#business setup

Setting up a Godo Kaisha

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