The Ultimate Guide on Changing Your Business Structure in Japan

Key Takeaways

Suppose you are a business owner of an SME (small and medium enterprise), a foreign entrepreneur, or a business owner in general. In that case, you may want to consider changing your business structure in Japan to unlock various benefits for your company. Changing your business structure can be a challenging step, but a necessary step to growing your business

Summary of this article

Typical business structures in Japan

Godo-Kaisha/合同会社 (GK)　

• Godo-Kaisha: Owned by all employees of the company who all have limited liability. 

Kabushiki-Kaisha/株式会社(KK) 

• Kabushiki-Kaisha: A Japanese company structure where the shareholders own the company. Shareholders of the companies are only liable for the amount of money they have invested.  

Sole Proprietorship/Kojin-Jigyo/個人事業

• A business owned and run by one person. Since the owner and business are under the same legal entity, the owner will be personally responsible for all debt or liabilities of the company.

Three reasons you should change your business structure in Japan

Now, why would a business owner in Japan want to change their business structure?

1. Expanding operations 

• By changing your business structure in Japan, you can expand your brand recognition among Japanese consumers. Changing your business structure is key to growing revenue and optimizing your business productivity.

2. Tax benefits of switching from a sole proprietorship to a GK or a KK

• Switching to an incorporated business offers you a lower tax rate compared to a sole proprietorship. 

*Here’s a full guide on tax reductions in Japan

3. Raising capital through investments and stock 

• In a GK structure, investors/owners must also be working for the company. Therefore, if you are looking to grow your business through many investors, you should change your company to a KK.

Two ways to change your business structure in Japan

Now that you are interested in changing your business structure in Japan, let’s see the available options

1. Switching from a Godo Kaisha (GK) to a Kabushiki Kaisha (KK) 

• If your business is growing in size, consider switching from a GK to a KK. A KK is preferred for a larger business, as you will have better credibility and fundraising opportunities. 

2. Switching from a sole proprietorship to a KK or a GK   

• You may consider switching from a sole proprietorship structure to a GK or KK. By doing this, you will limit your liability compared to a sole proprietorship.

Step-by-step process of changing your business structure in Japan 

It’s time to get down to business. How exactly does changing your business structure in Japan work?

Switching from a Godo Kaisha (GK) to a Kabushiki Kaisha (KK) 

1. Prepare a reorganization plan for the company (including the articles of incorporation) 
2. Obtaining consent from all employees 
3. Creditor protection procedures (the owners of the company can disagree with the restructuring plan) 
4. Become a KK on the specified date (becomes a joint-stock company) 
5. Registration at the Legal Affairs Bureau (within 2 weeks), (dissolution registration of the equity company and the incorporation registration of the joint stock company) 

Switching from sole proprietorship to a KK or a GK   

1. Determine 1 or more company promoters and address key business decisions (KK)
2. Appoint 1 or more limited liability partners and address key business decisions (GK) 
3. Create an official company representative seal (KK & GK)
4. Draft the articles of incorporation for the company (KK & GK)
5. Obtain certification for the articles of incorporation (KK)
6. Deposit the company’s capital (KK & GK)
7. Submit a registration application to the Legal Affairs Bureau (KK & GK)
8. Complete the company registration process and dissolution of your sole proprietorship business (KK & GK)
9. Notify relevant tax offices about the company registration (KK & GK)

*1. Requires: Company name, head of office location, business purpose, capital, members of the company, date of incorporation, and fiscal year. 

Difference between {switching from a sole proprietorship to a GK or KK} vs {starting a new business}

• Starting a new business and switching from a sole proprietorship to a company have mostly the same procedures. 
• Starting a new business does not require you to dissolve your old company and transfer assets to your new company 

Expected cost of changing your business structure in Japan 

What are the financial expectations for changing your business structure in Japan?

Switching from a Godo Kaisha (GK) to a Kabushiki Kaisha (KK) 

• ¥90,000 total =

1. ¥30,000 (for the establishment of the company) +

2. ¥30,000 (for the dissolution of the company) +

3. ¥30,000 (notice to the Gazette/Legal Affairs Bureau). 

Switching from sole proprietorship to a GK

• Total: ¥60,000 – ¥100,000

1. Revenue stamps for articles of incorporation ¥40,000 (¥0 if done online) 
2. Fee for creating articles of incorporation ¥0
3. Certified copy of articles of incorporation ¥0
4. Registration and license tax (¥60,000 or 0.7% of the company’s capital: The larger sum) 
5. Capital of the company: 1 yen or above 
6. Company seal: ¥1,000 – ¥10,000 yen 
7. Certificate for company seal: ¥100 – ¥1,000 yen 

Switching from sole proprietorship to a KK

• Total: ¥180,000 – ¥220,000

1. Revenue stamps for articles of incorporation ¥40,000 (¥0 if done online) 
2. Fee for creating articles of incorporation ¥30,000 (Capital less than ¥1 million), ¥40,000 (Capital of ¥1 million or above and below ¥3 million), and ¥ 50,000 (Capital above ¥3 million) 
3. Certified copy of articles of incorporation ¥2,000
4. Registration and license tax (¥150,000 or 0.7% of the company’s capital: The larger sum) *Learn more about business licensing in Japan 
5. Capital of the company: ¥1 or above 
6. Company seal: ¥1,000 – ¥10,000 yen 
7. Certificate for company seal: ¥100 – ¥1,000 yen 

Documentation you will need when changing your business structure in Japan

You will need these documents when changing your business structure in Japan

Switching from a Godo Kaisha (GK) to a Kabushiki Kaisha (KK) 

1. Registration application form 
2. Organization change plan form 
3. Consent from all employees 
4. Letter of acceptance to be appointed as the director 
5. Minutes of the Board of Directors meetings 
6. Certification of published announcement of restructuring the company 
7. Certification of notice 
8. Statement of creditor protection procedures 
9. Identification certificate of new director 
10. Seal registration form 
11. Representative director’s seal certificate
12. Application for dissolution of previous company 

Switching from sole proprietorship to a KK or GK 

1. Registration Application Form (KK) & (GK) 
2. Registration and license tax payment slip (KK) & (GK) 
3. Articles of Incorporation (KK) & (GK) 
4. Promoter’s decision/consent (KK) 
5. Certification of Acceptance of director/representative (KK)
6. Document listing the representative, head of office location, and initial capital (GK) 
7. Letter of acceptance of appointment of directors (KK) & (GK) 
8. Certificate for company seal (KK) & (GK) 
9. Capital payment certificate (KK) & (GK) 
10. Seal registration form (KK) & (GK) 
11. Recording of all registering matters (KK) & (GK) 

*For more information, check out our comprehensive guide on incorporation documents in Japan

Tax implications when changing your business structure in Japan

What tax implications should you consider when changing your business structure in Japan?

Tax implications for running a KK or GK: (They are the same)

• Corporate tax (Hojin-zei): 

23.2% (Capital over ¥1 million & less than ¥1 million if income is over ¥8 million) or 15% (if capital is less than ¥1 million and income is below ¥8 million). 

• Corporate resident tax (Hojin-Jumin-Zei): 

Only if your company is located in Tokyo and you have 50 or fewer employees. 

Capital over ¥10 million = ¥180,000 annually 

Capital less than ¥10 million = ¥70,000 annually 

• Consumation Tax (Shohi-zei): 

Capital over ¥10 million = 10% standard (8% for take-out food) 

Capital less than ¥10 million = 0% for the first two years since opening the business

*Read our article on Japanese taxes for new businesses

Tax implications for running a sole proprietorship

• Income tax (Shotoku-Zei):

Income tax = taxable income (income – expenses -various income deductions) x tax rate (see below)

• Resident tax (Jumin-Zei):

1. Income tax rate of 10% (6% = municipal resident tax) + (4%= prefectural resident tax)
2. Equal share flat rate fee of ¥4,000 (¥3,000 municipal resident tax) + (¥1,000 prefectural resident tax)

• Personal business tax (Kojin-Jigyou-Zei): Only if annual income is over ¥2.9 million

Your business tax rate, if applicable, will range between 3 – 5% depending on your business’s industry

• Consumption tax (Shouhi-Zei):

Standard consumption tax rate = 10% (reduced rate of 8% for food and beverages)

• Consumption tax to be paid = amount of consumption tax on sales – (amount of consumption tax on sales x deemed purchase rate)

Timeline of changing your business structure in Japan

Here’s an estimate of how long changing your business structure in Japan will take

Switching from a Godo Kaisha (GK) to a Kabushiki Kaisha (KK) 

• This process will typically take up to 2 – 3 months in total 

Switching from sole proprietorship to a KK or GK

• KK: 2 – 3 weeks (From preparation to the establishment of a new company) 

• GK: 1 – 2 weeks (From preparation to the establishment of a new company) 

*The notary public causes the 1-week difference to accept the article of incorporation for a KK

Two successful cases of restructuring in Japan

If they can do it, you can do it

Sole Proprietorship → KK: TokyoDev (Job board/community for software developers in Japan) 

• Initially operated his business as a sole proprietorship before converting it into a Kabushiki Kaisha in 2020
• Was able to successfully transfer his clients to his new company 
• Hired a legal team and accountant to take care of the incorporation paperwork and taxation process

Sole Proprietorship → KK: Zaim (Budgeting application) 

• Started as a sole proprietorship in 2011 and was incorporated in 2012
• Incorporation was due to the skyrocketing number of app users
• Went from a hobby to a top budgeting business in Japan

Final thoughts

• Changing your business structure in Japan will undoubtedly be a significant step forward in scaling up your business. Although the transition process requires many steps and careful consideration, this decision will help you secure long-term success in Japan’s competitive market.

• If you are considering moving to Japan to start a business, learn more about acquiring a working visa before booking a free consultation with us so we can assist you!