Kabushiki gaisha

Akabushiki gaisha(Japanese:Chu thức hội xã,pronounced[kabɯɕi̥kiɡaꜜiɕa];lit. 'share company')orkabushiki kaisha,commonly abbreviatedK.K.orKK,is a type of company(Hội xã,kaisha)defined under theCompanies Act of Japan.The term is often translated as "stock company", "joint-stock company"or" stock corporation ". The termkabushiki gaishain Japan refers to any joint-stock company regardless of country of origin or incorporation; however, outside Japan the term refers specifically to joint-stock companies incorporated in Japan.

Usage in language

In Latin script,kabushiki kaisha,with a⟨k⟩,is often used, but the original Japanese pronunciation iskabushiki gaisha,with a⟨g⟩,owing torendaku.

Akabushiki gaishamust include "Chu thức hội xã"in its name (Article 6, paragraph 2 of the Companies Act). In a company name,"Chu thức hội xã"can be used as a prefix (e.g.Chu thức hội xãĐiện thông,kabushiki gaisha Dentsū,a style calledTiền chu,mae-kabu) or as a suffix (e.g.トヨタ tự động xaChu thức hội xã,Toyota Jidōsha kabushiki gaisha,a style calledHậu chu,ato-kabu).

Many Japanese companies translate the phrase "Chu thức hội xã"in their name as"Company, Limited"—this is very often abbreviated as"Co., Ltd."—but others use the more Americanized translations" Corporation "or" Incorporated ". Texts in England often refer tokabushiki kaishaas "joint stock companies".While that is close to a literal translation of the term, the two are not precisely the same. The Japanese government once endorsed" business corporation "as an official translationbut now uses the more literal translation "stock company."

Japanese often abbreviate "Chu thức hội xã"in a company name on signage (including the sides of their vehicles) toChuinparentheses,as, for example, "ABC㈱."The full, formal name would then be"ABC chu thức hội xã".Chu thức hội xãis also combined into oneUnicode characteratcode pointU+337F㍿SQUARE CORPORATION,while the parenthesized form can also be represented with a single character,U+3231㈱PARENTHESIZED IDEOGRAPH STOCKas well as parentheses aroundU+682AChuCJK UNIFIED IDEOGRAPH-682Aand its romanizationU+33CD㏍SQUARE KK. These forms, however, only exist forbackward compatibilitywith older Japanesecharacter encodingsand Unicode and should be avoided when possible in new text.

History

The firstkabushiki gaishawas theDai-Ichi Bank,incorporated in 1873.

Rules regardingkabushiki gaishawere set out in theCommercial Code of Japan,and was originally based on laws regulating GermanAktiengesellschaft(which also means share company). However, during the United States-led AlliedOccupation of Japanfollowing World War II, the occupation authorities introduced revisions to the Commercial Code based on the Illinois Business Corporation Act of 1933, givingkabushiki gaishamany traits ofAmerican corporations,and to be more exact, Illinois corporations.

Over time, Japanese and U.S. corporate law diverged, and K.K. assumed many characteristics not found in U.S. corporations. For instance, a K.K. could notrepurchase its own stock(a restriction lifted by the amendment of the Commercial Code in 2001),issue stock for a price of less than ¥50,000 per share (effective 1982-2003), or operate with paid-in capital of less than ¥10 million (effective 1991–2005).

On June 29, 2005, theDiet of Japanpassed a new Companies Act(Hội xã pháp,kaisha-hō),which took effect on May 1, 2006.

Formation

Akabushiki gaishamay be started with capital as low as ¥1, making the total cost of a K.K. incorporation approximately ¥240,000 (about US$2,500) in taxes andnotarizationfees. Under the old Commercial Code, a K.K. required starting capital of ¥10 million (about US$105,000); a lower capital requirement was later instituted, but corporations with under ¥3 million in assets were barred from issuingdividends,and companies were required to increase their capital to ¥10 million within five years of formation.

The main steps in incorporation are the following:

1. Preparation and notarization ofarticles of incorporation
2. Receipt ofcapital,either directly or through an offering

The incorporation of a K.K. is carried out by one or moreincorporators(Phát khởi nhân,hokkinin,sometimes referred to as "promoters" ).Although seven incorporators were required as recently as the 1980s, a K.K. now only needs one incorporator, which may be an individual or a corporation. If there are multiple incorporators, they must sign apartnershipagreement before incorporating the company.

1. The value or minimum amount of assets received in exchange for the initial issuance of shares
2. The name and address of the incorporator(s)

The purpose statement requires some specialized knowledge, as Japan follows anultra viresdoctrine and does not allow a K.K. to act beyond its purposes.Judicialoradministrative scrivenersare often hired to draft the purposes of a new company.

Additionally, the articles of incorporation must contain the following if applicable:

1. Any non-cash assets contributed as capital to the company, the name of the contributor and the number of shares issued for such assets
2. Any assets promised to be purchased after the incorporation of the company and the name of the provider
3. Any compensation to be paid to the incorporator(s)
4. Non-routine incorporation expenses that will be borne by the company

Other matters may also be included, such as limits on the number of directors and auditors. The Corporation Code allows a K.K. to be formed as a "stock company that is not a public company"(Công khai hội xã でない chu thức hội xã,kōkai gaisha denai kabushiki gaisha),or a (so-called) "close company"(Phi công khai hội xã,hi-kōkai gaisha),in which case the company (e.g. its board of directors or a shareholders' meeting, as defined in the articles of incorporation) must approve any transfer of shares between shareholders; this designation must be made in the articles of incorporation.

The articles must be sealed by the incorporator(s) and notarized by acivil law notary,then filed with the Legal Affairs Bureau in the jurisdiction where the company will have its head office.

Receipt of capital

In a direct incorporation, each incorporator receives a specified amount of stock as designated in the articles of incorporation. Each incorporator must then promptly pay its share of the starting capital of the company, and if no directors have been designated in the articles of incorporation, meet to determine the initial directors and other officers.

The other method is an "incorporation by offering," in which each incorporator becomes thestock underwriterof a specified number of shares (at least one each), and the other shares are offered to other investors. As in a direct incorporation, the incorporators must then hold an organizational meeting to appoint the initial directors and other officers. Any person wishing to receive shares must submit an application to the incorporator, and then make payment for his or her shares by a date specified by the incorporator(s).

Capital must be received in acommercial bankaccount designated by the incorporator(s), and the bank must provide certification that payment has been made. Once the capital has been received and certified, the incorporation may be registered at the Legal Affairs Bureau.

Structure

Further information:Corporate title § Japan and South Korea

Board of directors

Under present law, a K.K. must have a board of directors(Thủ đế dịch hội,torishimariyaku kai)consisting of at least three individuals. Directors have a statutory term of office of two years, and auditors have a term of four years.

Small companies can exist with only one or two directors, with no statutory term of office, and without a board of directors(Thủ đế dịch hội phi thiết trí hội xã,torishimariyaku-kai hi-setchi-gaisha).In such companies, decisions are made via shareholder meeting and the decision-making power of the directors is relatively limited. As soon as a third director is designated such companies must form a board.

At least one director is designated as aRepresentative Director(Đại biểu thủ đế dịch,daihyō-torishimariyaku),holds the corporate seal and is empowered to represent the company in transactions. The Representative Director must "report" to the board of directors every three months; the exact meaning of this statutory provision is unclear, but some legal scholars interpret it to mean that the board must meet every three months. In 2015, the requirement that at least one director and one Representative Director must be a resident of Japan was changed. It is not required to have a resident Representative Director although it can be convenient to do so.

Directors are mandatories (agents) of the shareholders, and the Representative Director is a mandatory of the board. Any action outside of these mandates is considered a breach of mandatory duty.

Auditing and reporting

Every K.K. with multiple directors must have at least one statutory auditor(Giam tra dịch,kansayaku).Statutory auditors report to the shareholders, and are empowered to demand financial and operational reports from the directors.

K.K.s with capital of over ¥500m, liabilities of over ¥2bn and/or publicly traded securities are required to have three statutory auditors, and must also have an annual audit performed by an outsideCPA.Public K.K.s must also file securities law reports with the Ministry of Finance.

Under the new Company Law, public and other non-close K.K.s may either have a statutory auditor, or anominating committee(Chỉ danh ủy viên hội,shimei-iin-kai),auditing committee(Giam tra ủy viên hội,kansa-iin-kai)andcompensation committee(Báo thù ủy viên hội,hōshū-iin kai)structure similar to that of American public corporations.If the company has an auditing committee, it is referred to as acompany with a board of statutory auditors(Giam tra dịch hội thiết trí hội xã,kansayaku-kai setchi-gaisha).

Close K.K.s may also have a single person serving as director and statutory auditor, regardless of capital or liabilities.

A statutory auditor may be any person who is not an employee or director of the company. In practice, the position is often filled by a very senior employee close to retirement, or by an outside attorney or accountant.

Officers

Japanese law does not designate any corporate officer positions. Most Japanese-owned kabushiki gaisha do not have "officers"per se,but are directly managed by the directors, one of whom generally has the title of president(Xã trường,sha-chō).The Japanese equivalent of a corporatevice presidentis a department chief(Bộ trường,bu-chō).Traditionally, under thelifetime employmentsystem, directors and department chiefs begin their careers as line employees of the company and work their way up the management hierarchy over time. This is not the case in most foreign-owned companies in Japan, and some native companieshave also abandoned this system in recent years in favor of encouraging more lateral movement in management.

Corporate officers often have the legal title ofshihainin,which makes them authorized representatives of the corporation at a particular place of business, in addition to a common-use title.

Other legal issues

Taxation

Kabushiki gaisha are subject todouble taxationof profits and dividends, as are corporations in most countries. In contrast to many other countries, however, Japan also levies double taxes on close corporations (yugen gaishaandgōdō gaisha). This makes taxation a minor issue when deciding how to structure a business in Japan. As all publicly traded companies follow the K.K. structure, smaller businesses often choose to incorporate as a K.K. simply to appear more prestigious.

In addition to income taxes, K.K.s must also pay registration taxes to the national government and may be subject to local taxes.

Derivative litigation

Generally, the power to bring actions against the directors on the corporation's behalf is granted to the statutory auditor.

Historically,derivative suitsby shareholders were rare in Japan. Shareholders have been permitted to sue on the corporation's behalf since the postwar Americanization of the Commercial Code; however, this power was severely limited by the nature of court costs in Japan. Because the cost to file a civil action is proportional to the amount of damages being claimed, shareholders rarely had the motivation to sue on the company's behalf.

In 1993, the Commercial Code was amended to reduce the filing fee for all shareholder derivative suits to ¥8,200 per claim. This led to a rise in the number of derivative suits heard by Japanese courts, from 31 pending cases in 1992 to 286 in 1999, and to a number of very high-profile shareholder actions, such as those againstDaiwa BankandNomura Securities

See also

• Gōdō gaisha
• Gōmei gaisha
• Gōshi gaisha
• Yūgen gaisha

External links

• "Difference between Corporate Governance Practices in Japan and in U.S."–Nomura Group