When foreigners set up a company in Japan, one of the first questions many of them face is whether to establish a Kabushiki Kaisha (KK) or Godo Kaisya (GK).
Either entity is a corporation established under Japan’s Companies Act, and foreigners or foreign corporations may serve as its investors.
However, there are differences between KK and GK in terms of incorporation costs, credibility, decision-making processes, the relationship between investors and management, future fundraising, and perceptions when opening bank accounts.
In this article, we explain the differences between KK and GK from a practical perspective for foreign entrepreneurs and foreign-affiliated companies considering expansion into Japan.
1. Conclusion: Ask yourself, ‘Whose trust do I want to earn?’
To get straight to the point, the decision criteria are as follows.
| Scenario | Recommend |
| Want to do business with major Japanese corporations, publicly traded companies, and government agencies | KK |
| Want to conduct recruitment and fundraising in Japan on a full-scale basis | KK |
| Want to prioritize credibility as the Japanese subsidiary of a foreign parent company | KK |
| Want to start small | GK |
| Want to run it simply, either alone or with a small team | GK |
| Want to keep setup and operating costs low | GK |
| Want to restructure the organization if the business grows following market research in Japan | Could be GK |
In short, the basic principle is that if you prioritize external credibility, KK will be your first choice, whereas if you prioritize cost and operational simplicity, you should choose GK.
2. What is KK?
Kabushiki Kaisha (KK) is the most common form of business in Japan. In KK, investors become “shareholders” and the company is managed by a bord of directors.
In small companies, it is common for the shareholders and directors to be the same people, but structurally, “ownership” and “management” are kept separate.
Since KK is a familiar structure to Japanese clients, investors, and job candidates, it tends to be more easily recognized as a credible entity.
In particular, KK is a suitable choice in the following situations:
- Conducting business with Japanese corporate clients
- Hiring employees in Japan
- Planning to raise capital from investors in the future
- Prioritizing perception by banks and business partners
- Anticipating future stock transfers, capital increases, or M&A
On the other hand, incorporating KK involves higher setup costs than forming GK, and it also entails a relatively greater number of administrative procedures, such as articles of incorporation notarization, registration of changes in officers, shareholder meetings, and public notice of settlement of accounts.
3. What is GK?
Godo Kaisha (GK) is the Japanese equivalent of a Limited Liability Company (LLC). In GK, investors are called “members.” Here the term “member” does not refer to an employee, but rather to an investor or constituent of the company.
The key features of GK are that it offers greater flexibility in internal operations than KK and allows for lower setup and operating costs.
In particular, GK is a good fit in the following situations:
- Starting a business with one or a small number of people
- Operating in consulting, IT, Saas, e-commerce, or online services
- Not planning to bring in outside investors
- Wanting to keep setup costs low
- Wanting to simplify decision-making
GK is a corporate structure that is particularly well-suited for small businesses. In fact, some global foreign companies have established their Japanese subsidiaries as GK.
In Japan, however, GK is often perceived as having lower name recognition and credibility than KK. There may be situations where careful explanation of the company’s business activities and structure is necessary for business partners, banks, and job candidates.
4. Comparison of KK and GK
| Comparison items | KK | GK |
| External credibility | Strong | May be viewed as lower than KK |
| Startup costs | High | Low |
| Registration tax | Minimum 150,000 JPY | 60,000 JPY |
| Article of incorporation notarization | Generally required | Not required |
| Ownership and management | Separated as shareholders and directors | Investors are generally involved in management |
| Decision making | Relatively many procedures under the Companies Act | Flexible design options in the article of incorporation |
| Public notice of settlement of accounts | Required | Not required |
| Fundraising | Easier to design through a stock issuance | External investors may not be the right fit in some cases |
| Small-scale operation | Possible but involves quite a few steps | Suitable |
5. Any significant difference between KK and GK for tax purposes?
From a Japanese corporate tax perspective, both KK and GK are generally treated as ordinary corporations. In other words, the corporate tax rate does not vary significantly depending on whether the company is structured as KK or GK.
6. Key points for foreigners to keep in mind
For foreigners setting up a company in Japan, beyond deciding whether to form KK or GK, the following points must also be considered.
| Points | Notes |
| Bank account | Incorporations do not guarantee opening a corporate bank account. |
| Business Managers Visa | Not only the company structure, but also capital, business locations, and business plans matter. |
| Tax notifications | Notifications must be filed with the tax office, prefectural government, and municipal government after incorporation. |
| Social insurance | Paying director compensation or salaries may result in a mandatory enrollment requirement. |
| Explanation to business partners | GK may need to clarify the company structure |
It is especially important to have documents on hand that demonstrate the company’s actual operations when applying for a bank account or a status of residency.
Having materials such as a business plan, company profile, website, contracts, parent company documents, and a capital structure chart will make it easier to explain your business.
7. Which should you choose?
Considering the following points will make it easier to decide.
Cases KK is suitable
- Planning to fully expand business in Japan
- Prioritizing business dealings with Japanese companies
- Prioritizing credibility with banks and in hiring
- Planning to bring in investors in the future
- Establishing the company as a Japanese subsidiary of a foreign parent company
- Anticipating M&A or a stock transfer
Cases GK is suitable
- Starting small
- Planning to operate with one or a small number of people
- Wanting to keep setup costs low
- Having no plans to bring in outside investors
- Engaging in businesses such as consulting, IT, or e-commerce
- Wanting to test the Japanese market first
Conclusion
Whether KK or GK is the better choice depends on the purpose of the business. If credibility, hiring, fundraising, and how it appears to business partners are priorities, KK is the better option. On the other hand, if starting small, keeping costs down, or simplifying operations matters most, GK is also a strong option.
When foreigners set up a company in Japan, it is important to plan not only the corporate structure but also matters such as bank accounts, visas, taxes, and social insurance.
To avoid difficulties after incorporation, we recommend that you clarify your business objectives, funding plan, business partners, bank accounts, and tax procedures before incorporating the company.
Need help setting up your business in Japan?
We provide support to foreign founders and foreign-affiliated companies regarding tax notifications, accounting, payroll, consumption tax, and post-incorporation compliance following the establishment of a Japanese corporation.
Contact us before incorporation so we can help you design a setup plan that fits your visa, banking, and tax requirements.