Kabushiki kaisha
Encyclopedia
is a type of business defined under Japanese law.
form kabushiki gaisha are used. The "K" spelling is much more common in the names of companies and in English-language legal literature, whereas the "G" pronunciation is dominant in Japanese.
In Japanese, "kabushiki gaisha" can be used as a prefix (e.g. Kabushiki gaisha Dentsū
, which is called "mae-kabu") or as a suffix (e.g. Toyota Jidōsha Kabushiki gaisha
, which is called "ato-kabu"). It is often abbreviated as "", its first character.
Many Japanese companies translate the phrase "Kabushiki Kaisha" (KK) as "Co., Ltd." while others use the more Americanized translations Corporation or Incorporated. English texts often refer to kabushiki gaisha as "joint stock companies
"; while this is close to a literal translation of the term, the two are not the same. The Japanese government previously endorsed "business corporation" as an official translation but now uses the literal translation "stock company".
, incorporated in 1873.
Rules regarding kabushiki gaisha were set out in the Commercial Code of Japan
. During the American occupation
following World War II
, the occupation authorities introduced revisions to the Commercial Code based on the Illinois Business Corporation Act of 1933, giving kabushiki gaisha many traits of American corporations.
Over time, Japanese and U.S. corporate law diverged, and K.K. assumed many characteristics not found in U.S. corporations. For instance, a K.K. could not buy back its own stock
(a restriction which still stands), issue stock for a price of less than ¥50,000 per share (effective 1982), or operate with paid-in capital of less than ¥10 million (effective 1991).
On June 29, 2005, the Diet of Japan
passed a new , which took effect on May 1, 2006. The new law greatly affected the formation and function of K.K.'s and other Japanese business organizations, bringing them closer to their contemporary counterparts in the U.S.
A complete translation into English of the new Companies Act and summary analysis is available at Japanese Law Translation
s, and companies were required to increase their capital to ¥10 million within five years of formation.
The main steps in incorporation are the following:
The incorporation of a K.K. is carried out by one or more . Although seven incorporators were required as recently as the 1980s, a K.K. now only needs one incorporator, which may be an individual or a corporation. If there are multiple incorporators, they must sign a partnership
agreement before incorporating the company.
The purpose statement requires some specialized knowledge, as Japan follows an ultra vires
doctrine and does not allow a K.K. to act beyond its purposes. Judicial
or administrative scrivener
s are often hired to draft the purposes of a new company.
Additionally, the articles of incorporation must contain the following if applicable:
Other matters may also be included, such as limits on the number of directors and auditors. The Corporation Code allows a K.K. to be formed as a , or a (so-called) , in which case the board of directors must approve any transfer of shares between shareholders; this designation must be made in the articles of incorporation.
The articles must be sealed by the incorporator(s) and notarized by a notary public
, then filed with the Legal Affairs Bureau in the jurisdiction where the company will have its head office.
The other method is an "incorporation by offering," in which each incorporator becomes the underwriter of a specified number of shares (at least one each), and the other shares are offered to other investors. As in a direct incorporation, the incorporators must then hold an organizational meeting to appoint the initial directors and other officers. Any person wishing to receive shares must submit an application to the incorporator, and then make payment for his or her shares by a date specified by the incorporator(s).
Capital must be received in a commercial bank
account designated by the incorporator(s), and the bank must provide certification that payment has been made. Once the capital has been received and certified, the incorporation may be registered at the Legal Affairs Bureau.
At least one director is designated as a , holds the corporate seal and is empowered to represent the company in transactions. The representative director must "report" to the board of directors every three months; the exact meaning of this statutory provision is unclear, but some legal scholars interpret it to mean that the board must meet every three months. At least one director and one representative director must be a resident of Japan.
Directors are mandatories
(agents
) of the shareholders, and the representative director is a mandatory of the board. Any action outside of these mandates is considered a breach of mandatory duty.
K.K.s with capital of over ¥500m, liabilities of over ¥2bn and/or publicly traded securities are required to have three statutory auditors, and must also have an annual audit performed by an outside CPA
. Public K.K.s must also file securities law reports with the Ministry of Finance.
Under the new Company Law, public and other non-close K.K.s may either have a statutory auditor, or a , and structure similar to that of American public corporations.
Close K.K.s may also have a single person serving as director and statutory auditor, regardless of capital or liabilities.
A statutory auditor may be any person who is not an employee or director of the company. In practice, the position is often filled by a very senior employee close to retirement, or by an outside attorney or accountant.
is a . Traditionally, under the lifetime employment system, directors and department chiefs begin their careers as line employees of the company and work their way up the management hierarchy over time. This is not the case in most foreign-owned companies in Japan, and some native companies have also abandoned this system in recent years in favor of encouraging more lateral movement in management.
Corporate officers often have the legal title of shihainin
, which makes them authorized representatives of the corporation at a particular place of business, in addition to a common-use title.
of profits and dividends, as are corporations in most countries. In contrast to many other countries, however, Japan also levies double taxes on close corporations (yugen gaisha and gōdō gaisha). This makes taxation a minor issue when deciding how to structure a business in Japan. As all publicly traded companies follow the K.K. structure, smaller businesses often choose to incorporate as a K.K. simply to appear more prestigious.
In addition to income taxes, K.K.s must also pay registration taxes to the national government, and may be subject to local taxes.
Historically, derivative suit
s by shareholders were rare in Japan. Shareholders have been permitted to sue on the corporation's behalf since the postwar Americanization of the Commercial Code; however, this power was severely limited by the nature of court costs in Japan. Because the cost to file a civil action is proportional to the amount of damages being claimed, shareholders rarely had motivation to sue on the company's behalf.
In 1993, the Commercial Code was amended to reduce the filing fee for all shareholder derivative suits to ¥8,200 per claim. This led to a rise in the number of derivative suits heard by Japanese courts, from 31 pending cases in 1992 to 286 in 1999, and to a number of very high-profile shareholder actions, such as those against Daiwa Bank and Nomura Securities
Usage in language
Both kabushiki kaisha and the rendakuRendaku
is a phenomenon in Japanese morphophonology that governs the voicing of the initial consonant of the non-initial portion of a compound or prefixed word...
form kabushiki gaisha are used. The "K" spelling is much more common in the names of companies and in English-language legal literature, whereas the "G" pronunciation is dominant in Japanese.
In Japanese, "kabushiki gaisha" can be used as a prefix (e.g. Kabushiki gaisha Dentsū
Dentsu
is one of the largest advertising agencies in the world. Its headquarters are located in the Dentsu Building in the Shiodome district of Minato, Tokyo....
, which is called "mae-kabu") or as a suffix (e.g. Toyota Jidōsha Kabushiki gaisha
Toyota Motor Corporation
, , , commonly known simply as Toyota and abbreviated as TMC, is a multinational automaker headquartered in Toyota, Aichi, Japan. In 2010, Toyota Motor Corporation employed 317,734 people worldwide, and was the world's largest automobile manufacturer by production.The company was founded by...
, which is called "ato-kabu"). It is often abbreviated as "", its first character.
Many Japanese companies translate the phrase "Kabushiki Kaisha" (KK) as "Co., Ltd." while others use the more Americanized translations Corporation or Incorporated. English texts often refer to kabushiki gaisha as "joint stock companies
Joint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
"; while this is close to a literal translation of the term, the two are not the same. The Japanese government previously endorsed "business corporation" as an official translation but now uses the literal translation "stock company".
History
The first kabushiki gaisha was the First National Bank of JapanDai-Ichi Kangyo Bank
The , abbreviated as , was one of the largest banks in the world during the latter half of the 20th century. It combined with Fuji Bank and the Industrial Bank of Japan in 2000 to form Mizuho Financial Group....
, incorporated in 1873.
Rules regarding kabushiki gaisha were set out in the Commercial Code of Japan
Six Codes
Six Codes, , refers to the six main legal codes that make up the main body of law in Republic of China , Republic of Korea and Japan ....
. During the American occupation
Occupied Japan
At the end of World War II, Japan was occupied by the Allied Powers, led by the United States with contributions also from Australia, India, New Zealand and the United Kingdom. This foreign presence marked the first time in its history that the island nation had been occupied by a foreign power...
following World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, the occupation authorities introduced revisions to the Commercial Code based on the Illinois Business Corporation Act of 1933, giving kabushiki gaisha many traits of American corporations.
Over time, Japanese and U.S. corporate law diverged, and K.K. assumed many characteristics not found in U.S. corporations. For instance, a K.K. could not buy back its own stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
(a restriction which still stands), issue stock for a price of less than ¥50,000 per share (effective 1982), or operate with paid-in capital of less than ¥10 million (effective 1991).
On June 29, 2005, the Diet of Japan
Diet of Japan
The is Japan's bicameral legislature. It is composed of a lower house, called the House of Representatives, and an upper house, called the House of Councillors. Both houses of the Diet are directly elected under a parallel voting system. In addition to passing laws, the Diet is formally...
passed a new , which took effect on May 1, 2006. The new law greatly affected the formation and function of K.K.'s and other Japanese business organizations, bringing them closer to their contemporary counterparts in the U.S.
A complete translation into English of the new Companies Act and summary analysis is available at Japanese Law Translation
Formation
A kabushiki gaisha may be started with capital as low as ¥1, making the total cost of a K.K. incorporation approximately ¥240,000 (about US$2,500) in taxes and notarization fees. Under the old Commercial Code, a K.K. required starting capital of ¥10 million (about US$105,000); a lower capital requirement was later instituted, but corporations with under ¥3 million in assets were barred from issuing dividendDividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s, and companies were required to increase their capital to ¥10 million within five years of formation.
The main steps in incorporation are the following:
- Preparation and notarization of articles of incorporationArticles of IncorporationThe Articles of Incorporation are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency.An equivalent term for LLCs in the United States is the Articles of Organization...
- Receipt of capitalFinancial capitalFinancial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
, either directly or through an offering
The incorporation of a K.K. is carried out by one or more . Although seven incorporators were required as recently as the 1980s, a K.K. now only needs one incorporator, which may be an individual or a corporation. If there are multiple incorporators, they must sign 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...
agreement before incorporating the company.
Articles of incorporation
The articles of incorporation of a K.K. must include, at a minimum:- The trade nameTrade nameA trade name, also known as a trading name or a business name, is the name which a business trades under for commercial purposes, although its registered, legal name, used for contracts and other formal situations, may be another....
of the company - The purposes of the company
- The location of its head office
- The value or minimum amount of assets received in exchange for the initial issuance of shares
- The name and address of the incorporator(s)
The purpose statement requires some specialized knowledge, as Japan follows an ultra vires
Ultra vires
Ultra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is...
doctrine and does not allow a K.K. to act beyond its purposes. Judicial
Judicial scrivener
-Japan:In Japan, are authorized to represent their clients in real estate registrations, commercial registrations , preparation of court documents and filings with legal affairs bureaus...
or administrative scrivener
Administrative scrivener
, also known as gyosei-shoshi lawyers , form a legal profession in Japan.The primary occupation of administrative scriveners is to prepare and draft not only filings to the national government, local governments or government agencies, but also other documents related to rights, liabilities and...
s are often hired to draft the purposes of a new company.
Additionally, the articles of incorporation must contain the following if applicable:
- Any non-cash assets contributed as capital to the company, the name of the contributor and the number of shares issued for such assets
- Any assets promised to be purchased after the incorporation of the company and the name of the provider
- Any compensation to be paid to the incorporator(s)
- Non-routine incorporation expenses that will be borne by the company
Other matters may also be included, such as limits on the number of directors and auditors. The Corporation Code allows a K.K. to be formed as a , or a (so-called) , in which case the board of directors must approve any transfer of shares between shareholders; this designation must be made in the articles of incorporation.
The articles must be sealed by the incorporator(s) and notarized by a notary public
Notary public
A notary public in the common law world is a public officer constituted by law to serve the public in non-contentious matters usually concerned with estates, deeds, powers-of-attorney, and foreign and international business...
, then filed with the Legal Affairs Bureau in the jurisdiction where the company will have its head office.
Receipt of capital
In a direct incorporation, each incorporator receives a specified amount of stock as designated in the articles of incorporation. Each incorporator must then promptly pay its share of the starting capital of the company, and if no directors have been designated in the articles of incorporation, meet to determine the initial directors and other officers.The other method is an "incorporation by offering," in which each incorporator becomes the underwriter of a specified number of shares (at least one each), and the other shares are offered to other investors. As in a direct incorporation, the incorporators must then hold an organizational meeting to appoint the initial directors and other officers. Any person wishing to receive shares must submit an application to the incorporator, and then make payment for his or her shares by a date specified by the incorporator(s).
Capital must be received in a commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
account designated by the incorporator(s), and the bank must provide certification that payment has been made. Once the capital has been received and certified, the incorporation may be registered at the Legal Affairs Bureau.
Board of directors
Under present law, a K.K. must have a consisting of at least three individuals. Directors have a statutory term of office of two years, and auditors have a term of four years. Close companies can exist with only one director, with no statutory term of office.At least one director is designated as a , holds the corporate seal and is empowered to represent the company in transactions. The representative director must "report" to the board of directors every three months; the exact meaning of this statutory provision is unclear, but some legal scholars interpret it to mean that the board must meet every three months. At least one director and one representative director must be a resident of Japan.
Directors are mandatories
Mandate
Mandate can refer to:*Mandate , an obligation handed down by an inter-governmental body*Mandate , an official or authoritative command; an order or injunction*Mandate , the power granted by an electorate...
(agents
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
) of the shareholders, and the representative director is a mandatory of the board. Any action outside of these mandates is considered a breach of mandatory duty.
Auditing and reporting
Every K.K. with multiple directors must have at least one . Statutory auditors report to the shareholders, and are empowered to demand financial and operational reports from the directors.K.K.s with capital of over ¥500m, liabilities of over ¥2bn and/or publicly traded securities are required to have three statutory auditors, and must also have an annual audit performed by an outside CPA
Certified Public Accountant
Certified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA...
. Public K.K.s must also file securities law reports with the Ministry of Finance.
Under the new Company Law, public and other non-close K.K.s may either have a statutory auditor, or a , and structure similar to that of American public corporations.
Close K.K.s may also have a single person serving as director and statutory auditor, regardless of capital or liabilities.
A statutory auditor may be any person who is not an employee or director of the company. In practice, the position is often filled by a very senior employee close to retirement, or by an outside attorney or accountant.
Officers
Japanese law does not designate any corporate officer positions. Most Japanese-owned kabushiki gaisha do not have "officers" per se, but are directly managed by the directors, one of whom generally has the title of . The Japanese equivalent of a corporate vice presidentVice president
A vice president is an officer in government or business who is below a president in rank. The name comes from the Latin vice meaning 'in place of'. In some countries, the vice president is called the deputy president...
is a . Traditionally, under the lifetime employment system, directors and department chiefs begin their careers as line employees of the company and work their way up the management hierarchy over time. This is not the case in most foreign-owned companies in Japan, and some native companies have also abandoned this system in recent years in favor of encouraging more lateral movement in management.
Corporate officers often have the legal title of shihainin
Shihainin
A is an authorized representative of a company or unincorporated business under Japanese commercial law.A shihainin has full legal authority to represent the company/business at the place of business to which the shihainin is assigned...
, which makes them authorized representatives of the corporation at a particular place of business, in addition to a common-use title.
Taxation
Kabushiki gaisha are subject to double taxationDouble taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
of profits and dividends, as are corporations in most countries. In contrast to many other countries, however, Japan also levies double taxes on close corporations (yugen gaisha and gōdō gaisha). This makes taxation a minor issue when deciding how to structure a business in Japan. As all publicly traded companies follow the K.K. structure, smaller businesses often choose to incorporate as a K.K. simply to appear more prestigious.
In addition to income taxes, K.K.s must also pay registration taxes to the national government, and may be subject to local taxes.
Derivative litigation
Generally, the power to bring actions against the directors on the corporation's behalf is granted to the statutory auditor.Historically, derivative suit
Derivative suit
A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law,...
s by shareholders were rare in Japan. Shareholders have been permitted to sue on the corporation's behalf since the postwar Americanization of the Commercial Code; however, this power was severely limited by the nature of court costs in Japan. Because the cost to file a civil action is proportional to the amount of damages being claimed, shareholders rarely had motivation to sue on the company's behalf.
In 1993, the Commercial Code was amended to reduce the filing fee for all shareholder derivative suits to ¥8,200 per claim. This led to a rise in the number of derivative suits heard by Japanese courts, from 31 pending cases in 1992 to 286 in 1999, and to a number of very high-profile shareholder actions, such as those against Daiwa Bank and Nomura Securities
See also
- Gōdō gaisha
- Gōmei gaishaGōmei gaishaIn a gō-mei gaisha , all partners are jointly and severally liable for any liability incurred by the partnership, similar to an unlimited partnership. The partners¹ liability is unlimited, and creditors can go after each partner¹s personal assets if the assets of the partnership are insufficient to...
- Gōshi gaishaGōshi gaishaGo-shi Gaisha is a Japanese concept of a "unlimited liability" company, but the structure is like as the limited partnership. Unlike the other business types there is no limit on what a company is legally responsible for. Consequently, under the Japanese system this also means there is a nominal...
- Yūgen gaisha
External links
- Difference between Corporate Governance Practices in Japan and in U.S. - Nomura GroupNomura GroupThe formerly Nomura zaibatsu is a company headquartered in Chuo, Tokyo.Nomura is one of the major industrial and financial conglomerate groupings of Japan. Osaka Nomura bank was founded by Tokushichi Nomura II in 1919 after many successful business ventures; it was established on the Mitsui...