Godo Kaisha (G.K.)

I. Snapshot of G.K. in comparing K.K.

1. Similarity to K.K.

  • (1) No increase/decrease of the corporate tax rate from K.K.
  • (2) G.K. can incorporate with the capital of JPY1.
  • (3) G.K. holds the corporate veil, thereby shelters the personal property of the shareholder (“G.K. member”) from damage rising from the business, except for G.K. member’s liability to the third party raising from gross negligence or willful misconduct of G.K. member.
  • (4) Corporation can be G.K. member. Corporation of the managing member needs to appoint an individual for the conduct.

2. Advantages of G.K.

  • (1) Incorporation of G.K. is costless and simpler than K.K. Article of incorporation of K.K. must be acknowledged by the notary public at the cost of JPY50,400, but G.K.’s article of organization does not need this acknowledgement. The cost of G.K. set-up would be roughly JPY200,000, as compared with KK’s cost of JPY300,000, varying the capital amount, the use of electric application and mostly the agent fee.
  • (2) Broader freedom on corporate governance than K.K. Shareholders’meeting and public announcement of the financial statements are statutory required for K.K, but not for G.K.
  • (3) Term of G.K. director is statutory limited up to10 years varying on the type of K.K. and the registration must be renewed at each term of the appointment at the cost of the registration tax of JPY10,000. However the term of G.K. member is not statutory limited.
  • (4) Dividend can be distributed disproportionately from the investment ratio of G.K. member. G.K. member investing a small amount but contributing the vital intellectual property or the human resources can be distributed more than the investment ratio based on appraisal of the intellectual property or the human resources contributing to the earnings.
  • (5) For US tax purposes, G.K. can be “pass-through” by “check the box”.

3. Disadvantage of G.K.

  • (1) G.K. is a new form of the corporation introduced in 2006, therefore less familiar to the public with a slight chance of appearing less trust worthy than K.K. People know Apple Japan and ExxonMobil Japan, but do not know they are Apple Japan G.K. and ExxonMobil Japan G.K.
  • (2) G.K. member’s interest in G.K. cannot be assigned without the consent of the other members unless otherwise provided by the article of organization of G.K..

II. Taxation of G.K.

G.K. is a taxable entity distinct from the member, it is subject to the corporation tax generally in the same manner of K.K.
As G.K. is not “pass-through” for Japan tax purposes, the member is taxed on the income distribution from G.K. as dividend income. Transfer of G.K. interest is subject to capital gain taxation.

III. Balance of member’s interest in G.K.

The article of organization can provide allocation of G.K. profit/loss to each G.K. member disproportionately from the ratio of each G.K. member’s capital contribution. The allocation of G.K.’s profit/loss increases or decreases the balance of each member’s interest in G.K, but the allocation should be distinguished from distribution (payout) to the member. The profit allocation does not mean distribution(payout) to the member or the loss allocation does not mean additional capital injection from the member.
The balance of each member’s interest in G.K. increased or decreased by the allocation of G.K. profit/loss (and additional capital injection/pay-out, if any) is crystalized and settled at the time of dissociation of the member or liquidation of G.K. Since G.K.’s article of organization is supposed to describe the current amount of G.K.’s contributed capital, the distribution of the capital contribution (not income distribution) requires amendment of the article of organization.

IIII. Decedent’s interest in G.K.

Death of the member is an event of the member’s dissociation from G.K. The membership of the decedent member does not pass to the successor of the decedent, but the successor is entitled to liquidation of the decedent’s interest in G.K. unless otherwise provided by the article of organization. The successor (payee) is liable for Japan inheritance tax on the succeeded property, as opposed to the estate (payer) liable in US transfer tax.

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