Corporate Law Changes: No more YK

[FG Lurker]

Sometime soon, likely April 2006, major revisions to the Companies Act will take affect. How major?

Well, for one, the Yugen Gaisha will disappear. All existing YKs will become a special form of KK. No new YKs will be allowed.

A new form of LLC called Godo Kaisha will be created. These will be modeled after American LLCs, but it is not yet clear what their tax status will be. Basically the big question mark is will it be possible to use them a flow-through entities for tax purposes as can be done with an American LLC. LLPs will also be allowed.

Overall the changes look good. If the new GK can be used as a flow-through entity I will be extremely happy. Also, minimum capital requirements are going to be completely abolished. (Currently you can form a company with 1 yen capital but there are restrictions on this...and you also must inject the minimum 3mil or 10mil yen capital within 3 years.) There are quite a few other changes too. JETRO has some info up on this page, and a Google search for Godo Kaisha will turn up various other pages, but most of them seem to have taken their info from that JETRO page.

I was going to form a YK this year, but I think I will wait and form a GK next year instead. A few months more won't really affect what I have planned, although I am itching to get things underway.

If anyone has more information about what is happening with this I'd love to hear about it...

[Sarutaro]

Thanks for the update. I was planning to set up a YK early next year, but this might make me wait a little while. The part about no capital requirement is interesting. Does this mean I will be able to start a KK with 1 yen i capital, I wonder?

[FG Lurker]

Does this mean I will be able to start a KK with 1 yen i capital, I wonder?

You can start a KK with 1 yen capital now. The change will be that with the current system you have to pay in the full min capital amount of 10 million in 5 years time, but with the new system you don't. Some info on the old 1 yen system is on this page:

http://www.venturejapan.com/kakunin-k-k-y-g.htm

I am not sure if the rule changes next year will affect a 1 yen company formed this year. My feeling is that they will, but TIJ so who knows.

Are you sure you want a KK though? There is a lot of extra work involved (and setup/yearly expenses), and for a small company generally there is little or no benefit. Even some extremely large companies remain as YG. One example (from another page on the site linked to above) is Mobil. Have a look at the bottom of their page, "ExxonMobil Yugen Kaisha".

[Sarutaro]

Are you sure you want a KK?

Well, actually my idea was to start a KYK, not a KKK. But since corporate laws are changing it could be stupid to jump into somthing that might be totally over-turned in a few months.
The thing is, I don't want a flow-trough tax entity. I want the company to be paying tax on the profits, not me personally. But it looks like the GK will not be flow-trough.

[FG Lurker]

Are you sure you want a KK?

Well, actually my idea was to start a YKK, not a KKK. But since corporate laws are changing it could be stupid to jump into somthing that might be totally over-turned in a few months.

I think you have one too many Ks there. Good to hear you don't want to start a new branch of the KKK though! ]The thing is, I don't want a flow-trough tax entity. I want the company to be paying tax on the profits, not me personally. But it looks like the GK will not be flow-trough.[/quote]
It isn't known yet if a GK will be flow-through or not, but I hope it will be. It also makes sense to make it flow through as it is designed for small businesses and startups, entities where flow through makes a lot of sense. My desire is to start a GK and then move to a KK later once things get going better, something that is possible with the current YK/KK setup.

I want flow-through at first because the company will definitely produce red ink for the first couple of years as things get established. As I will be covering those losses with my own income, I want the losses to flow back to me and reduce my own taxable income -- I'm tired of losing 30% income tax on the top portion of my salary.

[Sarutaro]

[quote="FG Lurker"]I think you have one too many Ks there. Good to hear you don't want to start a new branch of the KKK though! ]

Actually, no. I was referring to a Kakunin Kabushiki Kaisha, the kind of KK that you can start with only one yen in capital the first five years.

http://www.daijob.com/dj4/en/column/terrie/column.jsp?id=320


Funny, though!

And by the way, with all the things you can put on company expense in this country, who needs salary? My company will be in red for years!

Actually, being in black will only attract the attention of the tax office, since it makes you stand out. 70% of all SMEs in this country are in red or on zero. Stay in red and blend in with the crowd or be prepared for revision where you will be visited by two gentlemen from the tax office who kindly will spend two days or more with you going through your papers in search of MORE profit. Being in red makes you less interesting...

[FG Lurker]

I think you have one too many Ks there. Good to hear you don't want to start a new branch of the KKK though! ]

Actually, no. I was referring to a Kakunin Kabushiki Kaisha, the kind of KK that you can start with only one yen in capital the first five years.

http://www.daijob.com/dj4/en/column/terrie/column.jsp?id=320


Funny, though!

Ah, I see now. I guess it would be KYK and KKK then? Apparently there is no legal difference between a KK and a KKK though, which is good.

And by the way, with all the things you can put on company expense in this country, who needs salary?

That is definitely the direction I am going back to. I have been there before, but know a lot more now than I did then. For now though I will keep my not-bad-paying day job while I get the new business up off the ground. I want the business to lower my tax burden during the early stages though, thus giving me more money to invest in the business. The more I can get into it at first the faster things will move.

[Sarutaro]

I wish you good luck! May I ask what kind of business you are planning to start?

[FG Lurker]

I wish you good luck!

Thank you, and likewise I wish you good luck!

May I ask what kind of business you are planning to start?

One that will make me a lot of money -- I hope. I'm sure I'll be talking about it more once I get it up and running.

[Sarutaro]

I see. Well, you should know that although the Love Hotel business may seem profitable at a glance, you have to factor in the cost of carpet stain removal.

[FG Lurker]

I see. Well, you should know that although the Love Hotel business may seem profitable at a glance, you have to factor in the cost of carpet stain removal.

Actually I would like to have a love hotel or two, but the startup costs are still beyond what I can manage. I know a guy starting a delihealth company -- big money to be had there. He's an ex-yak though, and has the needed contacts to uh, "get it up" and running.

Did you know it is quite easy to turn a business hotel into a love hotel? I think this loophole will get closed pretty soon...People are starting to complain about it!

[Sarutaro]

[FG Lurker]

[Greener]

If I had my own love hotel, I would have at least one baseball stadium room with artificial turf for carpeting AND bed spreads. (Maybe a hill of dirt but I haven't decided. Now you can hit a home run on the baseball field!

Bleachers for fans to watch would also be a possible addition...

[kamome]

Sometime soon, likely April 2006, major revisions to the Companies Act will take affect.

The best explanation online I have found that explains the development of the Godo Kaisha is here and here.

(Note: The second link is straight to a .pdf file produced by PWC in Japan.) Both sources are pretty technical but useful explanations of the new corporate law in Japan. I wouldn't rely on JETRO too much; their content pertaining to Japanese law is usually suspect.

[FG Lurker]

Sometime soon, likely April 2006, major revisions to the Companies Act will take affect.

The best explanation online I have found that explains the development of the Godo Kaisha is here and here.

(Note: The second link is straight to a .pdf file produced by PWC in Japan.) Both sources are pretty technical but useful explanations of the new corporate law in Japan. I wouldn't rely on JETRO too much]
Thanks kamome. I had seen the first one but not the second.

Everyone seems to be saying roughly the same thing at least! But no one yet seems to know if the new GK form will allow pass through taxation or not... I'll certainly keep digging for more info on this and post anything useful I find. If you hear anything concrete it'd be great if you could post it here too.

[FG Lurker]