As a means to organize my thoughts and understanding, I’ve decided to do a multi-post article breaking down the different steps to setting up a business in Japan. The reason why I’m doing this is to help further my own understanding and analyze the ins and outs of starting a business in Japan, and likewise, as a means to help those with similar ambitions.
Because I’ve never done something like this before, my interpretations could be very wrong. Don’t hang me for it.
Let’s get started. From what I have gathered there are two main types of incorporation that a business can set up: Kabuki Kaisha (KK) and Godo Kaisha (GK).
The Kabuki Kaisha (KK) is the most common type of corporation that is found in Japan. Much like a US stock company, shareholders invest their hard earned cash into a company and leave much of the decision making up to the directors. Though, it is possible for an individual to be both a shareholder and a director at the same time. Similarly, this is the most commonly found corporation found in Japan. And from what I can tell, running a Kabuki Kaisha company carries a certain reputation and a higher status, especially when networking with other companies. The disadvantage is that it’s more costly to set up.
The flips side of the coin is the Godo Kaisha. The Godo Kaisha is similar to a Limited Liability Company (LLC) in the US. Where the Godo Kaisha differs from the Kabuki Kaisha is that it consists of partners who invest and run the business simultaneously. So instead of having separate investors and directors, the Godo Kaisha combines the two. The drawback about the Godo Kaisha is that it was created in 2006 so it doesn’t carry as much credibility in comparison to the Kabuki Kaisha. If you’re future business has a lot of dealings with other companies, then maybe this type of incorporation isn’t the best idea.
There is also the option of Sole Proprietor (Kojin Jigyo). However this isn’t an option that is open to everyone. You either have to have a specific visa status (Spouse of Japanese National visa, Long Term Resident visa, Permanent Resident visa, Spouse of Permanent Resident) or meet other requirements: limited to certain amount working hours, have previous contracts for work, etc. From what I can gather, it’s recommended to start a business as a Sole Proprietor in the beginning to “test the waters”, but once your company grows to a certain size, it’s wise to switch to a KK or GK for tax reasons.
When deciding between a KK and a GK, it’s wise to first think about what your goals and your target niche is. If you’re a company who wants to foster cross cultural understanding in the workplace, then maybe a KK incorporation would be more to your liking. On the other hand, if you’re aim is to sell a product or service to individual customers, then a GK would be more suitable. Lastly, if you start your business as one thing but a number of years later it grows into something else, you can always change your company to the other.
Next up – Breaking Down Costs