Japan Limited Partnership Company Regulations

Published on October 31, 2025 and written by Cyril Jarnias

In an ever-evolving globalized economic context, understanding the specific regulations governing corporate structures in various countries is essential for international investors and entrepreneurs. Japan, with its unique blend of tradition and innovation, offers a distinct framework for limited partnerships, a less common legal form endowed with unique strategic advantages.

This system allows partners to flexibly balance levels of responsibility and investment, while adhering to the rigorous legal requirements imposed by Japanese law. Through this exploration, we will highlight the specifics of Japanese regulatory policies, offering an enriching perspective for any business considering establishing or partnering within this dynamic economic environment.

Specifics of Limited Partnerships in Japan

Characteristics of Limited Liability Partnerships (LLPs) in Japan

Legal Structure

A Limited Liability Partnership (LLP) is an unincorporated association established under the 2005 Limited Liability Partnership Contract Act and does not possess legal personality. Created by drawing inspiration from the British LLP system, it operates in Japan as a flexible for-profit partnership form. Due to this structure, it cannot be used for certain permits and licenses requiring legal personality.

Difference Between Limited and Unlimited Liability

• Limited Liability: In an LLP, all investors bear economic risk only up to the limit of their contributions. Thus, even in the event of significant losses, there is no need to liquidate personal assets.
• Unlimited Liability: In traditional partnerships governed by the Civil Code, all investors assume unlimited liability, which entails significant risks.

Principle of Internal Autonomy and Flexibility

In an LLP, there is considerable freedom regarding internal regulations and management policies. For example, profit distribution and the decision-making process can be freely determined without being tied to investment percentages. This characteristic differs from limited liability companies (LLCs) and joint-stock corporations.

Tax Obligations

1. Taxation of Members (Pass-Through Taxation): The LLP itself is not subject to corporate tax. After profit distribution, each individual or entity is subject to income tax or corporate tax.
2. Income Tax Withholding: There is an obligation to withhold tax when paying salaries or compensation to employees. Failure to pay can result in high penalties.
3. Regarding Loss Accounting: Offsetting gains and losses is possible but with certain restrictions.

Establishment Procedures

1. A partnership agreement must be drafted, mentioning the following:
   • Name, headquarters location, purpose, lifespan, etc.
2. It takes effect after the execution of contributions. A registration procedure is also mandatory.
3. It can be created by one or more persons. However, operation by a single entity is prohibited.

Comparison with Other Countries

– Like the British version of the LLP, the Japanese version also features limited liability, but it is characterized as unincorporated in Japan. In contrast, in the United States, it is often perceived in the form of a limited liability company.

– Among the requirements specific to Japan are the obligation to respond to requests for financial statement publication and regulations on minimum asset distribution.

Advantages

1. Safe collaborative business model, as risks are only incurred up to the limit of contributions.
2. Flexible and simplified governance structure (internal autonomy).
3. Application of pass-through taxation avoiding double taxation at the partnership level.

Disadvantages

1. Due to the lack of legal personality, it cannot directly obtain certain licenses or permits, making it unsuitable for some types of business activities.
2. Concerns about increased administrative costs related to registration obligations due to measures strengthening creditor protection.

The Role and Responsibility of General Partners in Japanese Companies

The role of unlimited liability partners (General Partners or GPs) is crucial in Limited Liability Partnerships (LLPs) and Limited Partnerships (LPS) in Japan. This text details the legal framework, fiduciary responsibilities, obligations, and legal consequences for non-compliance.

1. Role and Rights of Unlimited Liability Partners
   • Assume unlimited liability: Unlimited liability partners are responsible for debts beyond their capital contribution, which is particularly relevant when dealing with external creditors.
   • Operation as executives: Under the LPS Act and LLP contracts, generally, all unlimited liability partners act as executives. However, specific execution details can be adjusted by contract.
   • Involvement in fund management: They must make many decisions regarding fund structure and investment strategies.
2. Fiduciary Obligations
   • Duty of care: A high duty of care is imposed on unlimited liability partners. This applies not only to assets they manage personally but also to those entrusted by other limited partners.
   • Prevention of conflicts of interest: Protecting the fund or the interests of other members must take priority over pursuing personal interests.
3. Professional and Financial Obligations
   • Contribution to organization: They are also responsible for various risk management measures and implementing internal controls.
   • Compliance with contribution requirements: A minimum contribution of at least one unit is required. Furthermore, necessary registration procedures are indispensable.
4. Legal Violations and Their Consequences In case of professional ethics violations or gross negligence, consequences may include:
   1. Increased risk of claims by third parties, based on theories like Article 709 of the Civil Code
   2. Fines for failure to register, often set at approximately 1 million yen
   3. Decline in market trust/cessation of operations

Understanding the Minimum Capital Required to Establish a Limited Partnership in Japan

Definition and Legal Characteristics of the LLP

The Limited Liability Partnership (LLP) in Japan is a business structure without legal personality instituted in 2005. This system is established under the “Limited Liability Partnership Contract Act” and is characterized by all investors being liable only up to their contributions. Furthermore, thanks to the principle of internal autonomy, management rules and profit distribution can be flexibly decided among investors by contract. Additionally, since taxation occurs at the member level, there is no corporate tax; each member is taxed on their own income.

Legal Requirements Regarding Minimum Initial Capital

When establishing an LLP, it is necessary to have at least two investors, each required to invest at least 1 yen, making the initial capital possible from 2 yen. However, there is no set ceiling for this amount, and for large-scale projects, an appropriate amount must be prepared.

Role of Unlimited and Limited Liability Partners

In a traditional civil partnership, unlimited liability may be imposed. However, in the Japanese LLP, all members have limited liability and do not bear debts beyond their contributions, which has the effect of reducing risks.

Reference to Current Legislation

The “Limited Liability Partnership Contract Act” applies, stating important elements such as:

• Purpose and amount of contribution
• Name and location of the organization
• Duration of existence
• Accounting period

Furthermore, in the case of “Investment-Limited Business Type,” the “Limited Liability Investment Partnership Act” is also applicable.

Fluctuations in Minimum Capital by Business Sector and Other Considerations

Additional requirements may arise for certain specific industries (such as real estate management, for example). As an exception, non-monetary contributions in the form of intellectual property rights, real estate, securities, etc., may be recognized. However, detailed discussions have taken place regarding the valuation/contribution method and work-based allocation.

Foreign Investment: Impact and Points of Attention

Foreign residents can fully participate provided they meet the required conditions.

Regulations and Legal Obligations for Limited Partnerships in Japan

Legal Definition

In Japan, a limited partnership is a type of partnership with legal personality and is composed of unlimited liability partners and limited liability partners. Unlimited liability partners are responsible for all company debts, while limited liability partners bear debts only up to their contributions. It is necessary to have at least these two types of partners, and investors also hold management rights.

Legal Framework

Limited partnerships are governed by the Japanese Companies Act (Article 575, Paragraph 1, and Article 576, Paragraph 1, Number 5). For their establishment, the following are required:

• Drafting of articles of incorporation: Unlike joint-stock corporations, notarization is not required.
• Registration tax: 60,000 yen.
• Registration of establishment: application to the legal affairs bureau in charge of the headquarters location.

When establishing a limited partnership, it is necessary to have at least one person with unlimited liability and one person with limited liability.

Partner Liability

There is a difference in financial and legal obligations between unlimited liability partners and limited liability partners:

Partner Type	Liability
Unlimited Liability Partner	Has the personal obligation to jointly and severally pay all company debts.
Limited Liability Partner	Bears obligations towards debts only up to their capital contribution. However, they generally do not participate in management and only receive profit distributions.

Reporting Obligations

In terms of accounting and taxation, the following are required:

• Preparation of financial documents (balance sheet, etc.).
• Tax filings such as corporate tax and consumption tax to be paid (within two months after the end of the fiscal year).

In many cases, publication of accounts is not mandatory.

Recent Legislative Changes

In 2025, significant reforms of business laws and improvements to the accounting system are underway, including strengthened regulations related to the application of energy efficiency standards in the construction sector. However, there is currently no information on major changes planned regarding the very form of limited partnerships.

Compliance and Penalties

In case of non-compliance, significant fines or risks of dissolution are possible. Furthermore, failure to file can lead to tax reassessments or additional interest.