Starting a Company in Japan: OOD vs AD Comparison

Published on October 31, 2025 and written by Cyril Jarnias

Establishing a company in Japan presents an exciting challenge for foreign entrepreneurs, who face a complex yet fertile ecosystem. The choice of legal structure, between the LLC (Limited Liability Company) and JSC (Joint Stock Company) options, is crucial for determining long-term success. Understanding the nuances of each structure, particularly in terms of operational flexibility, tax burdens, and legal responsibilities, is vital for navigating Japan’s specific regulatory framework. This article will guide you through these essential differences, enabling you to make an informed and strategic decision to maximize your market entry into Japan.

Understanding the Differences Between LLC and JSC in Japan

The most common business forms in Japan are the Limited Liability Company (LLC) and the Joint Stock Company (JSC). We compare the characteristics, legal framework, governance structure, as well as the tax and regulatory obligations of each.

Definition and Legal Framework

• Limited Liability Company (LLC): A relatively new business form introduced in 2006, where investors also participate in the company’s management. It adopts a system of limited liability and is popular among SMEs and startups.
• Joint Stock Company (JSC): The most common business form in Japan, often used for large corporations or those intending to go public. It is characterized by the separation between investors (shareholders) and management.

Governance Structure

– In a Limited Liability Company, the members (investors) make decisions directly. Important matters are decided at the general meeting of members, and a representative member or an executive member is responsible for daily management.

– In a Joint Stock Company, management is handled by directors chosen at the general meeting of shareholders. If a board of directors exists, there are also more detailed decision-making bodies.

Element	Limited Liability Company	Joint Stock Company
Owners	Members	Shareholders
Decision-Making	Members’ Meeting	Shareholders’ Meeting/Directors
Management Freedom	High	More Restrictions

Tax and Regulatory Obligations

1. Establishment Cost:
   • Establishing a Limited Liability Company is inexpensive and does not require notarized document certification.
   • A Joint Stock Company incurs higher initial costs, such as registration taxes and notary fees.
2. Financial Statement Disclosure:
   • A Limited Liability Company has no obligation to publish its accounts, whereas a Joint Stock Company must do so.
3. Audit System:
   • The Limited Liability Company has no obligation to appoint auditors. In contrast, a large Joint Stock Company is required to appoint an auditor or an audit committee.

Financial Impact

1. Minimum Capital Requirements: Minimum capital requirements have been abolished for both forms in Japan. However, sufficient working capital remains necessary.
2. Profit Distribution:
   • In a Limited Liability Company, the method of profit distribution can be flexibly defined (e.g., equal sharing).
   • In a Joint Stock Company, profits are generally distributed based on shareholding percentage.

Concrete Examples

– Google Japan G.K. or Apple Japan G.K.: Foreign companies sometimes choose the Limited Liability Company form for its flexibility.

– Toyota Motor Corporation or Sony Group Corporation: For large-scale corporations, the Joint Stock Company form offers high social credibility and diverse financing methods.

Advantages and Disadvantages

1. Limited Liability Company:
   • Advantages: Low establishment cost, high flexibility
   • Disadvantages: Lack of name recognition, limited capacity to handle large investment projects
2. Joint Stock Company:
   • Advantages: High social credibility, ability to cater to diverse investors
   • Disadvantages: Increased costs

Selection Criteria Tips

Considering the following points can lead to an appropriate choice:

• Focus on reducing initial costs → Limited Liability Company recommended
• Ensuring reliability/large-scale expansion → Joint Stock Company recommended
• Prioritizing governance freedom → Limited Liability Company necessary

It is also essential to ensure alignment with the company’s vision and suitability for long-term plans when establishing a business.

Advantages and Disadvantages of LLC for Establishing a Company in Japan

Advantages:

• Process Simplicity and Cost-Effectiveness
  When using an LLC to create a business in Japan, time and costs are significantly reduced compared to traditional in-person procedures. Online applications and digitized processes reduce bureaucratic hurdles, enabling quick and efficient business creation.
• Flexibility and Efficiency
  The online setup is not limited by location or time, offering the flexibility to proceed with procedures from anywhere in the world. Furthermore, this method particularly simplifies complex administrative tasks, and often, it improves processing speed through automated systems.
• Market Access Expansion
  Internet-based operation allows easy access not only to the Japanese market but also to international markets. This broadens opportunities to connect with diverse customers and suppliers, which is also an advantage for Japanese companies seeking global expansion.

Disadvantages:

• Regulatory Compliance Issues
  In Japan, it is necessary to comply with local commercial law. For instance, regarding tax filings or bookkeeping management, specific expertise in Japanese rules is required. Additionally, certain industries impose additional conditions such as physical location or residency requirements for the legal representative.
• Trust Issues and Difficulty Building Trust Relationships
  Not having a physical office can be perceived as a factor of uncertainty for building trust relationships with local partners. Some clients often prefer an environment where they can meet directly and where a real presence contributes to trust creation, which can be a disadvantage.
• Technology Risks
  Using the internet involves security concerns. Preventive measures against personal data leaks and cyberattacks are essential but can be a financial burden for small businesses. Moreover, a lack of digital skills can lead to operational errors and problems.

Element	LLC	JSC
Process	Online-centered, streamlined	Document submission, counter visits
Cost	Relatively low cost	High initial investment and maintenance costs
Credibility	May be poorly evaluated by local partners	High level of trust, locally anchored
Legal Compliance	Complex under certain conditions	Clear but requires much in-person verification
Technology Dependence	High	Low

From the above, establishing a business through an LLC in Japan has certain advantages. However, when evaluating this option, a comprehensive judgment considering one’s own specific needs or the business model’s shortcomings is necessary.

Why Choose JSC: An In-Depth Analysis of Benefits

Legal Aspects: Simplified Administrative Procedures and Tax Benefits

• Advantages of the Limited Liability Company (LLC)
  • Reduced establishment cost: registration tax starts at 60,000 yen, which is significantly cheaper than the 150,000 yen for a Joint Stock Company. Additionally, notarization of articles of incorporation is not required, saving notary fees.
  • Reduced operating costs: holding board meetings or general shareholders’ meetings is not mandatory, and there is no term limit for executives, allowing for savings on additional costs such as registration amendments.
  • Tax-wise, profit distribution can be configured flexibly. It is possible to adopt a profit distribution method based on factors other than investment ratio, which is suitable for small businesses or family enterprises.
• Advantages of the Joint Stock Company (JSC)
  • Enhanced reliability: it benefits from high external credibility, which is an asset when transacting with large companies or obtaining loans from financial institutions.
  • Ability to attract investment: it allows for easy mobilization of significant investments through public listing, making it suitable for large corporations.

Operational Flexibility and Speed

• Limited Liability Company (LLC)
  • Great management freedom and simple decision-making process. Quick management is possible with the agreement of all members or solely by decision of executive members.
  • Ease in establishing specific rules within the autonomy of the articles of incorporation as a legal obligation. This allows for building a management system suited to realities.
• Joint Stock Company (JSC)
  • Although the governance system is structured due to the separation of ownership and management, the multi-layered decision-making process requires time and effort for implementation. However, this structure is also an asset for large organizations.

Economic Incentive and Impact on Growth and Sustainability

As a contract type, the LLC allows for reduced startup costs, which alleviates the burden on initial cash flow and, in many cases, enables focusing resources on reinvesting profits. This characteristic is particularly effective for businesses in the initial growth phase.

Concrete Examples

For example, in Japan, the LLC structure is chosen by small IT startups and business owners who have transitioned from sole proprietorship to incorporation, citing reasons such as reduced costs, speed, and a focus on adaptability to market variations. One can also observe successful cases of rapid startup through examples of building online sales platforms using Shopify.

Practical Guide to Choosing the Legal Structure Suited to Your Project in Japan

Introduction: The Importance of Choosing the Legal Structure

When starting a business in Japan, choosing an appropriate legal structure is crucial for the success of the venture. The flexibility needed to manage and grow the business, the ability to handle financial and legal risks, as well as tax compliance depend largely on this choice. Furthermore, designing a structure that complies with the specific regulations and systems of Japanese corporate law is essential for effective and legal business development.

Main Available Legal Structures and Their Description

Here are the main legal structures generally used in Japan and their characteristics.

1. Kabushiki Kaisha, KK
   • The most widely used corporate form.
   • Requirement for share capital.
   • Limited liability for shareholders (up to the capital invested).
   • Strict governance requirements (obligation to establish a board of directors, etc.).
   • Possibility of stock exchange listing.
2. Godo Kaisha, GK
   • Relatively new legal form, suited for SMEs and startups.
   • Requirement for share capital but possibility of low-cost establishment.
   • Owners = managers offering great flexibility.
   • Fewer governance requirements than the KK.
3. Branch Office
   • Considered as part of a foreign company and thus has no separate legal personality.
   • Registration necessary but suited for small-scale operations.
   • Tax reporting can sometimes be integrated with the foreign headquarters.
4. Representative Office
   • Exclusively dedicated to market research and information gathering. Profit-making activities prohibited.
   • No registration required. Often, no tax obligations.

Form	Financial Responsibility	Taxation	Establishment Costs	Governance Requirements
Kabushiki Kaisha (KK)	Limited liability for shareholders	Subject to independent taxation, Japanese standards applied	High (registration tax, etc.)	Strict (mandatory board of directors, etc.)
Godo Kaisha (GK)	Limited liability for investors	Subject to independent taxation, Japanese standards applied	Relatively low (simplified procedures)	Flexible
Branch Office	Unlimited liability of the parent company (joint liability of the headquarters)	Possible integration with foreign headquarters	Low
Representative Office	No financial responsibility	Often not subject to tax	None