Terrie's Job Tips -- Starting Your Own Company - Part One: Godo Kaisha

Back in 2003 I wrote about how you might want to start your own company as a future career path option - especially if you're in a job where there is very little opportunity for upwards promotion. Of course it's easier and lower risk to just go find a new job with another employer - all you need to do is update your resume, practice your presentation, and do some interviews. But if you're moving up in age (over 40), or are in an industry where pricing has been commoditized, or you've been pigeon-holed in a particular position and you don't want to take a big pay cut to reset your career, then starting your own business can be a viable alternative.

There is also the opportunity consideration. In Japan, apparently many of the wealthiest people who have made money in their generation (versus inheriting it) have done so as owners of small- to medium-size companies. Of course there are some doctors and dentists in there as well, but nevertheless I find it quite remarkable.

When I wrote the start-your-own-company article back in 2003, one-yen companies had just been permitted in the commercial code and raising thousands of dollars in capital was no longer the challenge it once was. But there were other restrictions that still put a lot of people off. The good news is that the commercial code has since undergone another major rework in 2005, and in April 2006, a new range of legal company entities and rules were created which make it much easier to set up and run a company. Personally, I think they changed the rules because the number of new companies being established started plummeting about 10 years ago, and today there is a 20% imbalance between those companies closing naturally (mainly because of aged owners) and those being started.

In establishing a company, there are 3 distinct phases of activity. Firstly selecting and setting up the actual registered entity. Secondly, establishing the internal systems and procedures and getting the company registered with the various authorities that allow you to do things like hiring people and paying social insurance. Thirdly, there is the actual operation of the business and the decision of whether or not to use an incubator and outsource the back office (HR, Accounting, Tax, etc.) or get your own space and own internal administration people.

Today, let's start with establishing the entity. You'll find a good overview of what the options and procedures are at my business magazine site, http://www.japaninc.com/mgz_autumn_2006_incorporate. There are several different types of formats, ranging to LLCs which in the old Yugen Kaisha business format allowed millions of mom and pop stores to be started in Japan, to full-on stock-based companies. Today, the Yugen Kaisha has been replaced with the Godo Kaisha.

Establishing a Godo Kaisha is straight forward, and of course you can do it for as little as one yen of capital. The fact is, though, that the establishment costs are still high, because you need to pay various stamp duties, registration fees, and, unless you are totally fluent in Japanese, a judicial scrivener to help you through the paperwork. The Japanese name for the scrivener is a "Shihoshoshi". Figure on paying out about JPY300K to JPY400K to do your set-up.

A Godo Kaisha is good if you're getting together with a friend or family member to create a small operation that will hold your interests and allow you to bill your clients without them taking withholding tax (which they're obliged to do if you're not a company), AND if you don't expect to make it much bigger. Rather than having transferable stock in the company, you instead share the capital as partners. This means that all decisions affecting the company and its capital have to be made in unison, and of course can become difficult if your partner decides to move overseas and is hard to contact, or if you divorce and lose the family involvement! For this reason, I usually counsel people to go the next step and set up a proper KK.

Next week, we talk about what's involved in establishing a KK.