The following explains the legal differences between a branch and a subsidiary, as well as the differences between a Kabushiki-Kaisha and Godo-Kaisha in Japan.
| Subject matter | Branch office | Subsidiary company | |
|---|---|---|---|
| Kabushiki-Kaisha (joint-stock corporation) |
Godo-Kaisha (limited liability company (LLC)) |
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| Capital | No capital | 1 yen or more*1 | 1 yen or more*1 |
| Number of investors | — | 1 or more | 1 or more |
| Liability of equity participants/parent company toward creditors | Unlimited | Limited to amount of equity participation | Limited to amount of equity participation |
| Transfer of equity participation share | No equity participation share | May be transferred freely in principle. May be stipulated in articles of incorporation that approval of Board of Directors is needed for transfer of shares. |
Unanimous approval of equity participants (members) required |
| Number of executives required | Representative in Japan. 1 or more*2 |
See Tables 1-2, 1-3*2 | No legally stipulated minimum. In principle, all members are executive officers, but may be stipulated otherwise in articles of association*2 |
| Legally stipulated term of office for executives | No legally stipulated term | See Tables 1-2, 1-3 | No legally stipulated term |
| Regular general meeting of shareholders (members) | Not required | In principle, must be held every year | Not required |
| Possibility of public offer of stock (equity participation share) | No equity participation share | Possible | Not possible |
| Possibility of reorganization into joint-stock corporation | Not possible. Need to separately close branch office and register resignation of all representatives in Japan, and establish joint-stock corporation |
— (A joint-stock corporation may be reorganized into a limited liability company.) |
Possible |
| Distribution of profits and losses | — | Allocated according to equity participation ratio | May be allocated at a different rate from equity participation rate if specified in articles of association |
| Taxation of profits | Income arising within Japan is in principle taxed | Taxed according to profits of joint-stock corporation and profits allocated to shareholders | Taxed according to profits of Godo-Kaisha and profits allocated to participants |
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(Note)
Regardless of the type of operation, filing prior notification of inward direct investment with the Bank of Japan is required as a general rule when conducting a business in an industry specified by the Foreign Exchange and Foreign Trade Act, etc.
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*1
Although establishment with capital of zero yen is theoretically possible, approval is granted ex post facto, and it is not in practice possible to incorporate a company without paying in capital.
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*2
When a branch office is to be established in Japan, at least one representative must have an address in and be a resident in Japan.
Said address requirement does not apply to a representative director (or a representative executive officer) of a Kabushiki-Kaisha and a representative member (a person performing duties of such member, if such representative is a corporation) of a Godo-Kaisha (on and after March 16, 2015).
