Foreign companies generally engage in business operations by establishing a branch office or subsidiary company, and the legal differences between each of these are summarized in the following table.
| Subject matter | Branch office | Subsidiary company | |
|---|---|---|---|
| Kabushiki-Kaisha (joint-stock corporation) | Godo-Kaisha (limited liability company (LLC)) | ||
| Capital | No capital | 1 yen or more*1 | 1 yen or more*1 |
| Number of investors | — | 1 or more | 1 or more |
| Liability of equity participants/parent company toward creditors | Unlimited | Limited to amount of equity participation | Limited to amount of equity participation |
| Transfer of equity participation share | No equity participation share | May be transferred freely in principle. May be stipulated in articles of incorporation that approval of Board of Directors is needed for transfer of shares. | Unanimous approval of equity participants (members) required |
| Number of executives required | Representative in Japan. 1 or more*2 | See Tables 1-2, 1-3*2 | No legally stipulated minimum. In principle, all members are executive officers, but may be stipulated otherwise in articles of association*2 |
| Legally stipulated term of office for executives | No legally stipulated term | See Tables 1-2, 1-3 | No legally stipulated term |
| Regular general meeting of shareholders (members) | Not required | In principle, must be held every year | Not required |
| Possibility of public offer of stock (equity participation share) | No equity participation share | Possible | Not possible |
| Possibility of reorganization into joint-stock corporation | Not possible. Need to separately close branch office and register resignation of all representatives in Japan, and establish joint-stock corporation*3 | — (A joint-stock corporation may be reorganized into a limited liability company.) | Possible |
| Distribution of profits and losses | — | Allocated according to equity participation ratio | May be allocated at a different rate from equity participation rate if specified in articles of association |
| Taxation of profits | Income arising within Japan is in principle taxed | Taxed according to profits of joint-stock corporation and profits allocated to shareholders | Taxed according to profits of Godo-Kaisha and profits allocated to participants |
| Subject matter | Small and medium companies (joint-stock corporations with capital of less than 500 million yen and total liabilities of less than 20 billion yen) | Large companies (joint stock corporations with capital of 500 million yen or more or total liabilities of 20 billion yen or more) | ||
|---|---|---|---|---|
| Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) | Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) | Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) | Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) | |
| Number of Directors | Appointment of 1 or more required. Representative director with right to execute business. If no representative director is appointed, executive officers each have the right of representation *2 | Appointment of 3 or more required | Appointment of 1 or more required. Representative director with right to execute business. If no representative director is appointed, executive officers each have the right of representation *2 | Appointment of 3 or more required*3 |
| Term of Directors | 1 to 10 years. Extendable up to 10 years | 2 years | 1 to 10 years. Extendable up to 10 years | 2 years |
| Board of directors(3 directors or more) | Establishment optional. Establishment required if board of auditors is established | Establishment required | Establishment optional. Establishment required if board of auditors is established | Establishment required |
| Representative director(s) | Appointment possible if 2 or more directors appointed. Executive officer with right of representation *2 | Appointment of 1 or more required. Executive officer with right of representation*2 | Appointment possible if 2 or more directors appointed. Executive officer with right of representation *2 | Appointment of 1 or more required. Executive officer with right of representation*2 |
| Number of Auditors | 1 or more may be appointed. However, appointment of 1 or more is required if a board of directors is established and no accounting counselor is appointed | Appointment of 1 or more required | Appointment of 3 or more required | |
| Term of Auditors | 4 years in principle Extendable up to 10 years | 4 years | 4 years in principle Extendable up to 10 years | 4 years |
| Board of auditors(3 or more auditors) | Establishment possible | Establishment required | ||
| Appointment of Accounting auditor | Appointment possible | Appointment necessary | ||
| Term of Accounting auditors | 1 year | |||
| Appointment of Accounting councilors*4 | Appointment possible. However, 1 or more must be appointed if a board of directors is established and no auditor is appointed | Appointment possible | ||
| Term of Accounting councilors*4 | 2 years in principle. Extendable up to 10 years | 2 years | 2 years in principle. Extendable up to 10 years | 2 years |
| Subject matter | Small and medium companies (joint-stock corporations with capital of less than 500 million yen and total liabilities of less than 20 billion yen) | Large companies (joint stock corporations with capital of 500 million yen or more or total liabilities of 20 billion yen or more) | |||
|---|---|---|---|---|---|
| (1) Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) (2) Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) | |||||
| Number of Directors | Appointment of 3 or more required | ||||
| Term of Directors | 1 year | ||||
| Board of directors (3 or more directors) | Establishment required | ||||
| Representative director | Appointment not possible | ||||
| Number of Executives | Appointment of 1 or more required. Appointment of representative executive officer if 2 or more *2 | ||||
| Term of Executives | 1 year | ||||
| Auditors | Appointment not possible | ||||
| Board of auditors (3 or more auditors) | Appointment not possible | ||||
| Appointment of Accounting auditor | Required | ||||
| Term of Accounting auditor | 1 year | ||||
| Accounting councilor Appointment | Possible | ||||
| Term of Accounting councilor | 1 year | ||||
| Auditors committee | Establishment required (for auditing, etc. of performance of duties by executive officers). Consists of 3 or more directors, of which a majority must be outside directors*3 | ||||
| Nominating committee | Establishment required (to decide on proposed appointment and dismissal of directors for submission to the general meeting of shareholders) Consists of 3 or more directors, of which a majority must be outside directors*3 | ||||
| Benefit committee | Establishment required (to determine compensation of executive officers, etc.). Consists of 3 or more directors, of which a majority must be outside directors*3 | ||||
| Subject matter | Small and medium companies (joint-stock corporations with capital of less than 500 million yen and total liabilities of less than 20 billion yen) | Large companies (joint stock corporations with capital of 500 million yen or more or total liabilities of 20 billion yen or more) | |||
|---|---|---|---|---|---|
| (1) Kabushiki Joto Seigen Kaisha (joint-stock corporations subject to restrictions on the transfer of issued shares) (2) Kokai Kaisha (publicly traded joint-stock corporations that are not Kabushiki Joto Seigen Kaisha) | |||||
| Number of Directors (members of comm. of auditors, etc.) | Appointment of 3 or more required *2 | ||||
| Term of Directors (members of comm. of auditors, etc.) | 2 year | ||||
| Number of Directors (excl. members of comm. of auditors, etc.) | Appointment of 1 or more required. | ||||
| Term of Directors (excl. members of comm. of auditors, etc.) | 1 year | ||||
| Board of directors | Establishment required | ||||
| Representative director | Appointment required*3 | ||||
| Auditors | Appointment not possible | ||||
| Board of auditors | Appointment not possible | ||||
| Appointment of Accounting auditor | Required | ||||
| Term of Accounting auditor | 1 year | ||||
| Appointment of Accounting councilor | Possible | ||||
| Term of Accounting councilor | 1 year | ||||
| Auditors committee | Establishment required (for audit, etc. of performance of duties by directors). Consists of 3 or more directors, a majority of which must be outside directors*2 | ||||
