KK or GK? — Pros & Cons

The first two terms we learn when we think of starting a company are KK and GK. Many people know that KK stands for Kabushiki Kaisha and GK stands for Godo Kaisha, but what’s the actual difference between the two?

Who makes the decision in your company?

A quick review as to what KK and GK are:

• Kabushiki Kaisha (KK) — Stock Company
• Godo Kaisha (GK) — Limited Liability Corporation without stock

The company registration fee for a GK is ￥60,000 (paid only to Legal Affairs Bureau), while the incorporation fee for a KK is approximately ￥250,000 total, based on the following breakdown:

• ￥50,000 to the Notary Office
• ￥40,000 for the revenue stamp
• ￥150,000 to the Legal Affairs Bureau
• additional documentation fees

Many entrepreneurs decide to go with GK because it’s cheaper and easier to set up, but it is important to note that

• investors prefer to invest in KK because they can invest based on the share purchase agreement.
• to change GK to KK, it takes at least 1.5 months in order to list the change of entity on an official gazette and to register it at Legal Affairs Bureau.
• the decision-making power in the company is based on share distribution among the shareholders, and it’s much easier to visualize the decision-making structure in a KK.

To go at your own pace, GK is a option

The most convincing reason that I heard from an entrepreneur was

“ I am launching a GK because I am not planning to get any investment from the third party. I want to keep pursuing what I want to achieve with my company, so there is no need to think about stocks.”

Another entrepreneur told me

“ I will co-found this company with my best friend. We will not break our relationship through this startup journey.”

When we think of the word “startup”, we tend to think about scalability or founder-investor relationships. As long as we can go at our own pace, there is not necessarily a need to grow fast by involving a third party. We can all be entrepreneurial regardless of the entity style — GK, KK, or even sole-proprietor or freelancer. The crucial point is not the number of companies that we own or what kind of legal entity we have, but how our business can make a positive impact on society.

Can we trust the members around us?

If I co-found a GK with some of my friends, and if all of us invest at least ￥1 to launch the GK, basically all of us will have equal decision making power.

Unlike the KK, the decision making power in GK is distributed equally regardless of the amount each member invests. Especially in the cases where there is an even number of people involved, making a decision can result in a gridlock.

Although we can try to combat this by freely setting the rule regarding decision making power on the Articles of Incorporation, GK’s Articles of Incorporation is not required to be notarized at Notary Office, so the compelling power could be relatively small compared to the notarized Articles of Incorporation that all KK owners have.

After observing several GK startups, I feel the successful GK owners are able to trust their members wholeheartedly, or they have strong direction to sustain the business by themselves without financially asking for help from investors.

Side note

1. According to several “immigration specialists”, the Business Manager visa acceptance rate does not change based on whether the business is set up as a GK or KK.
2. The one paying the initial capital during incorporation can be a company. If you have a company outside of Japan and if you appoint the company to pay the initial capital on your behalf and launch a GK in Japan, the decision making power of the GK will follow the structure of the company in abroad.
3. As far as I know, most investors prefer to use A-type stocks for seed-round funding. In other words, KKs are the only entity that can accept the investment.
4. The tax system works exactly the same for GK and KK. No tax benefit for LLC like in the US. All GK and KK owners need to pay at least ￥70,000 Corporate Residence Tax (法人住民税), regardless of whether or not they make profit.