The primary benefit of establishing a subsidiary (Kabushiki Kaisha or “KK” corporate subsidiary) vs. a branch office is the appearance of stability and commitment that it gives prospective employees, customers, and distributors. As negatives, it costs $4,000 or more to set up, requires 4-6 weeks of shuffling paperwork, there are more rules to follow, and separate revenue/expense line items cannot be consolidated to the parent’s books.
The newer Godo Kaisha (GK) entity, similar to a Limited Liability Corporation (LLC) in the USA, was established in 2006, Compared to a KK, it provides the same liability protections, but is cheaper to register and there are fewer restrictions. However, stock cannot be traded in the open market, making it unsuitable for raising large amounts of capital. And because the GK is unfamiliar to most Japanese, most companies choose the KK structure to set up a subsidiary, despite the extra costs involved.
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Branch Office
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Kabushiki Kaisha (KK) |
Godo Kaisha (GK) |
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Overview |
Commercial activites are allowed. |
Most similar to a US-style C- corporation. |
Most similar to a US-style Limited Liability Corporation (LLC). |
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Credibility |
Low |
High |
Medium |
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Advantages |
Least expensive to set up. |
Seems most stable, and is highly trusted by Japanese customers and employees. |
Cheaper than a KK to incorporate, with most of the protections. |
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Disadvantages |
Seems unstable |
More expensive to set up. |
Introduced in 2006, GK is still not well-known, and is less credible than a KK. |
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Minimum Capitalization |
No capital |
1 Yen or more |
1 Yen or more |
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Set-up Cost |
approx. Y150,000 Yen |
approx. Y350,000 |
approx. Y200,000 |
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| Liability | Parent company is liable to Liability of the KK’s shareholders the creditors. | is limited to the amount of their equity participation. | Liability of the GK’s shareholders is limited to the amount of their equity participation. | |
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Accounting |
Consolidated to the parent company’s books. (Japan income must be declared to the Japanese tax authority, taxable at ~40%.) |
Cannot be consolidated to the parent company’s books. (Income must be declared to the Japanese tax authority, taxable at ~40%.) |
Cannot be consolidated to the parent company’s books. (Income must be declared to the Japanese tax authority, taxable at ~40%.) |
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Executives required |
1 resident in Japan (not necessarily an employee) must act as a branch manager. |
A shareholder resident in Japan must serve as Representative Director. |
A partner resident in Japan must act as the company’s representative. |