Godo kaisha
Encyclopedia
A gōdō gaisha abbreviated GK, is a type of business organization in Japan
modeled after the American limited liability company
(LLC). It is a type of mochibun kaisha
(corporation
having a simplified internal structure like that of a partnership
) distinguished by offering limited liability
for all investors.
Following ratification of the agreement, the GK's articles of incorporation and corporate seal must be registered with the . Once the bureau processes the registration, the company may open a bank account, seal contracts, and engage in other activities as a legal entity.
The members may, either in the agreement or pursuant to the agreement, choose a from among their ranks. This manager can be either an individual or a corporation; however, corporate managers must appoint a to perform the actual management duties.
The legal duties of GK managers are very similar to the legal duties of KK directors. GK members may sue managers in the same way that KK shareholders may sue directors on the company's behalf.
A GK may be converted to a KK with the unanimous consent of all of its members.
In late 2005, following the passage of the Companies Act, the Ministry of Economy, Trade, and Industry pressed the Ministry of Finance
to treat GKs as "pass-through entities" in which only company profits would be taxed. However, the Ministry of Finance refused to allow such treatment. As a result, many new companies are expected to use the more prestigious KK business form rather than the GK business form, especially given the looser regulation of KKs under the new law. The only limited liability business which receives pass-through tax treatment in Japan is the limited liability partnership
.
Under United States
tax law, godo gaisha are not classified as corporations, and are therefore eligible to make an entity classification election
: a single-member GK may be treated as an extension of its member and a multi-member GK may follow the tax rules for partnership
s.
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
modeled after the American limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...
(LLC). It is a type of mochibun kaisha
Mochibun kaisha
are a class of corporations under Japanese law. While mochibun kaisha have legal personality as corporations, their internal functions are similar to partnerships, as they are both owned and operated by a single group of .-Types:...
(corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
having a simplified internal structure like that of a partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
) distinguished by offering limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
for all investors.
Background
Gōdō gaisha were established by the Companies Act of 2005 as a replacement for yūgen gaisha (YK), a similar business structure intended for small businesses. The new law became effective on May 1, 2006, at which point GKs could be created and YKs could no longer be incorporated. Existing YKs incorporated before May 1, 2006 continue to operate as yūgen gaisha under the yūgen gaisha law but have the option to convert to kabushiki gaisha (KK).Basic structure
A GK is formed by signed between its investors, called . Each member may provide a capital contribution in the form of money or property. Credit and promises to perform services are not valid consideration for an ownership interest in a GK.Following ratification of the agreement, the GK's articles of incorporation and corporate seal must be registered with the . Once the bureau processes the registration, the company may open a bank account, seal contracts, and engage in other activities as a legal entity.
The members may, either in the agreement or pursuant to the agreement, choose a from among their ranks. This manager can be either an individual or a corporation; however, corporate managers must appoint a to perform the actual management duties.
The legal duties of GK managers are very similar to the legal duties of KK directors. GK members may sue managers in the same way that KK shareholders may sue directors on the company's behalf.
A GK may be converted to a KK with the unanimous consent of all of its members.
Distinguishing characteristics
The following distinguish godo gaisha from kabushiki gaisha:- All members must consent to amendment of the articles of incorporation, unless the articles of incorporation provide otherwise. (In a KK, only a supermajority of shareholders is required.)
- All members must consent to any transfer of ownership, unless the articles of incorporation provide otherwise. (In a KK, the transfer of shares is unlimited by default.)
- All members are representatives of the company by default, unless managers have been appointed. (In a KK, only the representative directors represent the company.)
- Major business decisions (such as large asset sales or winding up of the company) may be made informally. (In a KK, resolutions of shareholder and board meetings are often required for such decisions).
- Members may invest any type of asset in exchange for their interest. (In a KK, non-cash contributions require an appraisal supervised by a court.)
- Because KKs have traditionally required a larger capital and procedural investment, GKs do not have the same level of prestige.
Taxation
GKs are taxed as corporations under Japanese law: the company's profits are taxed at corporate tax rates, and dividends are taxed at individual tax rates.In late 2005, following the passage of the Companies Act, the Ministry of Economy, Trade, and Industry pressed the Ministry of Finance
Ministry of Finance (Japan)
The ' is one of cabinet-level ministries of the Japanese government. The ministry was once named Ōkura-shō . The Ministry is headed by the Minister of Finance , who is a member of the Cabinet and is typically chosen from members of the Diet by the Prime Minister.The Ministry's origin was back in...
to treat GKs as "pass-through entities" in which only company profits would be taxed. However, the Ministry of Finance refused to allow such treatment. As a result, many new companies are expected to use the more prestigious KK business form rather than the GK business form, especially given the looser regulation of KKs under the new law. The only limited liability business which receives pass-through tax treatment in Japan is the limited liability partnership
Limited liability partnership
A limited liability partnership is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important...
.
Under United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
tax law, godo gaisha are not classified as corporations, and are therefore eligible to make an entity classification election
Entity classification election
For United States income tax purposes, a business entity may elect to be treated either as a corporation or as other than a corporation. This entity classification election is made by filing Internal Revenue Service Form . Absent filing the form, a default classification applies. U.S...
: a single-member GK may be treated as an extension of its member and a multi-member GK may follow the tax rules for partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
s.