Establishing a Business in Japan: KK or GK? Business 26/09/18 Authors Raquel Nahmad VazquezAttorney at Law, MexicoTNV Law & Consulting Daisuke TakahashiAttorney at Law, JapanTNV Law & Consulting / Shinwa Law This is a summary. To view the full article, please visit:  https://acrobat.adobe.com/id/urn:aaid:sc:AP:266b3b14-68ac-42b2-b3c8-c88081fd5290  Key considerations for foreign companies entering the Japanese market   One of the first decisions facing a foreign company entering Japan is whether to establish a Kabushiki Kaisha (KK) or a Godo Kaisha (GK).   Both structures offer limited liability and can be established with one investor and nominal capital. However, they differ in incorporation costs, governance, ownership transfers, market recognition and operational flexibility. The most appropriate choice therefore depends not only on Japanese corporate law, but also on the company’s long-term business plans.   The main options for entering Japan   A foreign company may establish a presence in Japan through:   A representative office, which cannot generally conduct commercial transactions A branch office of the foreign company A Japanese subsidiary established as a KK or GK   For companies intending to conduct business independently in Japan, the KK and GK are the two most common corporate structures.   Kabushiki Kaisha   A KK is generally comparable to a stock corporation. It is Japan’s most widely recognized corporate form and is often selected by companies seeking to build a substantial, long-term presence in the market.   A KK must have at least one shareholder and one director. Its articles of incorporation must be notarized, making incorporation more expensive and time-consuming than establishing a GK.   The company must also hold an annual shareholders’ meeting and comply with certain corporate procedures. Shares are generally transferable, although the articles of incorporation may require company approval before a transfer can take place.   One important advantage is credibility. Japanese banks, customers, suppliers and potential employees are generally familiar with the KK structure. It may therefore be preferable for companies planning to raise investment, expand their operations or eventually offer shares to the public.   Godo Kaisha   A GK is a limited liability company that offers a simpler and more flexible structure. Its articles of incorporation do not require notarization, which usually reduces incorporation costs and processing time.   A GK does not need to hold an annual shareholders’ meeting. Its members can also establish flexible arrangements for management and the distribution of profits and losses through the articles of incorporation.   However, transferring an ownership interest generally requires the unanimous approval of the other members. A GK also cannot make a public offering of shares.   Although the GK has historically been less familiar in the Japanese market, its use has increased considerably. Several major international companies have adopted this structure for their Japanese subsidiaries. Nevertheless, some businesses may still find that a KK offers stronger recognition when dealing with traditional Japanese institutions.   Legal requirements and practical realities   Japanese law permits both a KK and a GK to be established with capital of only one yen. In practice, however, such a low amount may make it difficult to demonstrate that the company has sufficient resources to operate.   Capital levels may also affect immigration applications. For example, obtaining Business Manager status of residence generally requires the business to satisfy certain scale requirements, such as an investment of at least 30 million yen or the employment of qualifying full-time personnel, subject to the applicable rules and individual circumstances.   Japanese law also allows a company to appoint a representative who does not reside in Japan. Nevertheless, opening a corporate bank account without a resident representative can be challenging. Financial institutions apply strict anti-money-laundering and know-your-customer procedures and may request detailed information about the company’s ownership, activities, customers and expected transactions.   Choosing a corporate structure should therefore involve more than confirming what is legally possible. Banking, immigration, taxation and commercial credibility must also be considered.   Comparison with Mexican corporate forms   Mexican investors may see similarities between a Japanese KK and a Mexican Sociedad Anónima de Capital Variable (S.A. de C.V.), or between a GK and a Sociedad de Responsabilidad Limitada (S. de R.L.). These comparisons can be helpful, but the structures are not identical.   For example, a KK can be established by a single shareholder, whereas a traditional Mexican stock corporation generally requires at least two shareholders.   A KK also does not have variable capital in the same way as an S.A. de C.V. Changes to its registered capital must follow the procedures established under Japanese law and be formally registered.   In addition, a KK is generally required to publish an annual balance-sheet announcement. This is different from the disclosure requirements ordinarily applicable to privately held Mexican corporations.   These differences illustrate why a corporate structure that appears familiar should not automatically be assumed to operate in the same way in another country.   Cross-border documentation   Practical difficulties may also arise when Japanese institutions review documents issued overseas.   In a recent matter involving a company expanding into Tokyo, Japanese institutions requested verified proof of the Mexican head office’s address. Although the documentation submitted was legally recognized in Mexico, differences in formatting and verification requirements initially prevented its acceptance in Japan.   The issue was resolved by identifying precisely how the Japanese institutions interpreted foreign corporate records and preparing documentation that met their requirements.   This experience highlights an important point: successful incorporation depends not only on meeting the law, but also on understanding how foreign documents will be examined in practice.   Making the right choice   A KK may be more suitable for a company seeking broad market recognition, external investment or significant long-term expansion in Japan. A GK may be preferable for a closely held business that values lower incorporation costs and greater operational flexibility.   There is no single structure that is right for every company. Before proceeding, investors should consider their business objectives, ownership arrangements, immigration needs, banking requirements and future financing plans.   Understanding these