CASE
What is a limited liability company?
2013.7 名前なし
A limited liability company (LLC) is a newly established company form created by the enforcement of the Companies Act in 2006. The number of limited liability companies established is on the rise, and according to the Ministry of Justice, the number exceeded 10,000 in 2012. Two major reasons for the increase are as follows:
■Lower cost to establish and maintain than a stock company
■Can operate a business with a high degree of flexibility and mobility.
A limited liability company is a combination of a Kabushiki Kaisha and a limited liability partnership (LLP), and is ideal for small businesses and subsidiary companies. Japanese subsidiaries of overseas companies, such as Seiyu, a subsidiary of American company Wal-Mart Stores, have also changed their organizational structure to a limited liability company, as it eliminates the need to hold board of directors’ meetings and general shareholders’ meetings, enabling faster decision making.
Difference between Kabushiki Kaisha and limited liability company
(1)Investors manage the business themselves
In a Kabushiki Kaisha, the shareholders and management are in principle separate, but in a limited liability company, the members, who are relevant to shareholders for Kabushiki Kaisha, have the right to execute business operations, which means ownership and management are combined. In this respect, it’s as same as previously existing Gomei Kaisha and Goshi Kaisha (aka General Partnership Company and, Limited Partnership Company), but in the case of Gomei and Goshi Kaisha, the liability of the investors (all or some) is direct unlimited liability*, whereas Godo Kaisha, like a stock company, has indirect limited liability*.
*Direct unlimited liability…If the company’s assets are insufficient to repay its debts, the investors are liable to the full extent of their liabilities and are directly pursued by creditors for their liabilities.
* Indirect limited liability…liability to the extent of the contribution and no further liability if the contribution has already been fulfilled
(2)Freedom of institutional design allows for quick decision-making
Kabushiki Kaisha are required to establish certain oversight bodies, such as a general shareholders meeting, which requires various procedures and time to hold.
(3)No restrictions on Large Companies (capital of 500 million or more or liabilities of 20 billion or more)
In Kabushiki Kaisha, Large Companies are obligated to have an accounting auditor and to maintain an internal control system. In some cases, Large Companies, such as Kyokuto Petroleum Industries, LLC, have reorganized into a limited liability company to avoid this regulation.
(4)Free to decide how to operate the company, pay dividends, etc., with the consent of all contributors.
Regardless of the contribution ratio, the distribution of profits, losses, and authority can be freely determined according to the degree of contribution to the business (In principle, it’s proportional to the amount of capital contribution in a stock company). On the other hand, if there are many investors, it’s more difficult for the company to make decisions, therefore a limited liability company is more suitable for a company established by a small number of contributors.
(5)No obligation to publish financial statements
(6)No term of office for officers (representative partners and operating partners), no need to register change of officers.
(7)No need for certification of articles of incorporation (approximately 50,000 yen) at the time of its establishment
(8)Registration tax of 60,000 yen for registration of incorporation (150,000 yen for Kabushiki Kaisha)
While a limited liability company has a wide range of autonomy and freedom in its articles of incorporation, legal knowledge is required to create the best articles of incorporation for the business (In principle, the consent of all members is required to amend the Articles of Incorporation.).
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