Q_iconHow is the limited liability company (goudou gaisha) in Japan different from the LLC in the United States?

A_dark_iconAn American LLC (Limited Liability Company) can choose to apply pass-through taxation, while a Japanese limited liability company only has the option to apply corporate taxation.

★ Explanation ★

The limited liability company corporate structure was introduced to Japan following the enforcement of the Companies Act from May 1, 2006. The goudou gaisha structure was modeled after the United States’ LLC, or Limited Liability Company.

The term goudou gaisha is often translated as Limited Liability Company (LLC) in English. This comes from the fact that the employees of a limited liability company bear limited liability should the company incur debt ― their liability is limited to the amount they have invested (Article 580 of the Companies Act).

Companies Act

(Responsibility of Members)

Article 580 1 Members are jointly and severally liable for the performance of obligations of the Membership Company in the cases listed below:

(i) in cases where the obligations of such Membership Company cannot be fully performed with the assets of the same; or

(ii) in cases where compulsory execution against the assets of such Membership Company has not been successful (except for the cases where the members have proven that such Membership Company has financial resources to pay and that the compulsory execution can be effected at ease).

2 Members with limited liability are liable for the performance of the obligations of the Membership Company to the extent of the value of their investment (excluding the value of contributions already performed to the Membership Company).

Source: Japanese Law Translation Database System

LLCWhile the Japanese limited liability company and the American LLC do have in common the fact that their investors are limited in their liability and have its own legal personality, taxation imposed on the two vary. In the United States, LLCs are given the option to apply pass-through taxation, while limited liability company in Japan are subject to corporate taxation. Thus, it is important not to confuse the two when establishing a business in Japan.