Companies everyone knows — DMM, Apple Japan, Google, Amazon Japan, Seiyu, and others — are not "kabushiki-kaisha (stock companies)" but "godo-kaisha (LLCs)." DMM changed its organization from a stock company to an LLC in 2018. Many assume this is a "downgrade," but in fact the aim is not tax saving; it is cost reduction and speed of decision-making. LLCs have grown so rapidly that they now account for about 30% of newly established corporations (more than one in four). This article comprehensively organizes the merits, demerits, procedures, and costs of changing from a stock company to an LLC, and the biggest misconception — that "taxes stay the same." For incorporation itself, see also the timing of incorporation.
Why do famous companies become LLCs? (The DMM example)
Changing from a stock company to an LLC is called an "organizational change." It is a procedure in which you do not wind up the company and rebuild it, but change only the form while keeping the same corporate personality. Because the corporate personality is continuous, contracts, licenses and permits, loss carryforwards, bank accounts, and the like are in principle carried over as they are.
DMM.com changed its organization from a stock company to an LLC in May 2018, and merged with a group company in June of the same year. The aim was faster and more efficient decision-making by unifying planning, sales, and development, and its policy of not aiming to go public is said to be part of the background[ITmedia (in Japanese)].
The LLC is a relatively new form born with the enforcement of the Companies Act in 2006 (modeled on the U.S. LLC), and it is often adopted by the Japanese subsidiaries of foreign companies. Representative LLCs include the following companies.
| Company | Features |
|---|---|
| DMM.com LLC | Changed from a stock company (2018). Unlisted, owner-run |
| Apple Japan / Google / Amazon Japan | Foreign-affiliated IT. Japanese subsidiaries operated as LLCs |
| Seiyu LLC | Major supermarket. Became an LLC after being under foreign ownership |
| P&G Prestige / Universal Music | Foreign-affiliated. Brands are established, so the impact on credibility is small |
All of them share the trait of being "unlisted, and already having name recognition and a brand." This is exactly where the reasons an LLC suits a company show up.
LLCs are surging (more than one in four)
New LLC formations are increasing year by year. About 20,000 companies in 2015, about 30,000 in 2019, exceeding 40,000 for the first time in 2023, and reaching 42,107 companies in 2024 (about 30% of newly established corporations)[Tokyo Shoko Research (in Japanese)]. While new stock-company formations have plateaued (down year on year), LLCs keep growing.
Behind this lie the low cost of establishment and the simplicity of the procedures. In particular, when sole proprietors incorporate — often triggered by the invoice system — cases of choosing the lower-cost LLC are increasing. We are moving away from an era when people felt uneasy because it was "an unusual form."
Differences between a stock company and an LLC (overview)
Here are the main differences between the two. The points in bold are advantages of the LLC.
| Item | Stock company | LLC |
|---|---|---|
| Name for investors | Shareholders | Members (= investors) |
| Title of the representative | Representative director | Representative member |
| Articles-of-incorporation notarization (notary) | Required (fee ¥30,000–¥50,000) | Not required (¥0) |
| Registration and license tax at establishment | Minimum ¥150,000 | Minimum ¥60,000 |
| Term of officers | Directors: in principle 2 years (up to 10 years if unlisted) | None |
| Reappointment registration | Required each term (registration and license tax ¥10,000) | Not required |
| Public notice of financial results | Mandatory every year (about ¥60,000/year via the Official Gazette) | Not required |
| Decision-making | Shareholders' meeting, board of directors, etc. | Flexible under articles autonomy |
| Distribution of profits | In principle in proportion to investment (shares) | Can be set freely in the articles |
| Going public | Possible | Not possible |
| Fundraising | Can raise broadly via shares and stock acquisition rights | Investment only (no shares) |
| Transfer of equity | Share transfer (in principle free, can be restricted) | In principle requires the consent of all other members |
| Social recognition | High | Somewhat lower than a stock company |
| Corporate tax and social insurance | Same (no difference) | |
Merit 1: Cost and effort go down
The biggest merit of an LLC is that it takes less money and effort both at establishment and afterward.
| Cost incurred | Stock company | LLC |
|---|---|---|
| Articles notarization (notary fee) | ¥30,000–¥50,000 | ¥0 |
| Registration and license tax at establishment | Minimum ¥150,000 | Minimum ¥60,000 |
| Guide to establishment costs (total) | About ¥220,000–¥250,000 | About ¥60,000–¥100,000 |
| Public notice of financial results (yearly) | Required (Official Gazette about ¥60,000/year) | Not required |
| Officer reappointment registration | Each term (registration and license tax ¥10,000 + effort) | Not required |
A stock company requires notarization of the articles of incorporation by a notary, and that fee alone is ¥30,000–¥50,000. An LLC does not require articles notarization[Ministry of Justice (in Japanese)]. Furthermore, even after establishment, a stock company requires an annual public notice of financial results (failing to do so is subject to a non-penal fine of up to ¥1 million) and officer reappointment registration each term, but an LLC needs neither. The larger the company, the more this fixed-cost reduction accumulates, especially for companies that will not go public.
Merit 2: A high degree of freedom in operation
An LLC is broadly granted "articles autonomy," so you can freely decide the rules for running the company yourselves.
- Decision-making is fast: You are not bound by the design of bodies such as the shareholders' meeting or board of directors, and can decide nimbly by the agreement of the members (investors). This is also the biggest reason DMM changed its organization.
- You can design profit distribution freely: A stock company in principle pays dividends in proportion to the investment ratio, but an LLC can decide the distribution in the articles regardless of the investment ratio (for example, distributing more to members who contribute more).
- Fewer constraints on officers (managing members): There is no term of office, and no effort for re-election or reappointment registration.
You can also establish a "one-person LLC" with only a single member, and decision-making is even simpler. When a sole proprietor incorporates for social insurance or credibility, the lower-cost LLC tends to be chosen (micro corporations and social insurance premiums).
Demerits and points to note
Cases where an LLC suits
- The owner is one person or a small number, and does not aim to go public
- BtoB, or already has name recognition and a brand
- Wants to compress operating cost and effort
Points to judge carefully
- Low recognition. It can be a disadvantage in BtoC, hiring, transactions, and financing
- Cannot go public (because there are no shares)
- Cannot raise funds via shares (harder to receive investment from VCs, etc.)
- If opinions split among members, nothing can be decided (important matters in principle require unanimity of all members)
For well-known companies like DMM and Apple, the "loss of credibility" demerit is hardly a problem. Conversely, a BtoC company that wants to build recognition from now on, or a company considering a future IPO or large fundraising from venture capital, is better suited to a stock company. The risk of conflict among members can be addressed by setting the voting method in advance in the articles.
The biggest misconception: taxes stay the same
Both a stock company and an LLC are the same "ordinary corporation" for tax law. As shown below, the tax burden is exactly the same, and becoming an LLC does not reduce your taxes by even ¥1.
| Tax / burden | Difference between a stock company and an LLC |
|---|---|
| Corporate tax rate | Same (for SME corporations, 15% on annual income of ¥8 million or less, 23.2% above)[National Tax Agency No.5759] |
| Per capita levy of corporate inhabitant tax | Same (determined by capital, etc. and number of employees. At minimum about ¥70,000/year) |
| Consumption tax / invoice | Same (application conditions such as the 20% special provision do not change with the corporate form) |
| Officer compensation / social insurance | Same (managing members = officers. Social insurance is mandatory) |
| Various special provisions for SMEs | Same (special provisions for small-value depreciation, entertainment expenses, etc. are common) |
In other words, the merit of becoming an LLC lies not in the tax amount, but in running costs such as registration and public notices, and in the freedom of operation. Actual tax saving is done not through the company form but by using systems such as optimizing officer compensation and the Business Safety Mutual Aid. Because an organizational change is a continuation of the same corporation, loss carryforwards are also in principle carried over.
Procedures, costs, and duration of an organizational change
An organizational change from a stock company to an LLC proceeds in the following flow. It takes about 1–2 months.
- Prepare an organizational change plan and obtain the consent of all shareholders (unanimous consent is required)
- Creditor protection procedure: Official Gazette notice + individual notice to known creditors (an objection period of one month or more)
- Handling of shares: for a share-certificate-issuing company, a public notice of submission of share certificates, etc.
- Registration: within the prescribed period from the effective date, the dissolution registration of the stock company + the establishment registration of the LLC
The registration and license tax is the establishment registration of the LLC (capital amount × 1.5/1000, minimum ¥30,000) + the dissolution registration of the stock company (¥30,000), for a minimum of ¥60,000. Adding Official Gazette notice costs (tens of thousands of yen) and judicial scrivener fees (roughly ¥50,000–¥150,000), the total comes to a guide of about ¥150,000–¥250,000.
* Along with this, practical work arises such as changing the name on bank accounts and various contracts ("○○ Co., Ltd." → "○○ LLC"), change notifications to social insurance and the tax office, and changes to licenses and permits (re-application depending on the type). Proceed with plenty of time to spare.
You can also change back to a stock company later
If you later decide to aim for an IPO or large fundraising, an organizational change from an LLC to a stock company is also possible. In fact, there are cases where a startup grows and becomes a stock company when it enters the stage of preparing for an IPO. However, because registration, public notices, and other procedures and costs are incurred again, the basic approach is to choose the form that fits your policy for the time being. If you are newly establishing a company from now, see company establishment costs for a comparison of establishment costs.
FAQ
Why did DMM become an LLC?
DMM changed its organization from a stock company to an LLC in 2018. The aim was not tax saving but reasons of cost and freedom: (1) public notice of financial results becomes unnecessary (it does not have to disclose its results), (2) officer reappointment registration and shareholders' meetings are unnecessary so decision-making is fast, and (3) with no plan to go public, there is no need to be a stock company. The Japanese subsidiaries of Apple and Google are LLCs for the same reason — for wholly owned subsidiaries of foreign companies, the upkeep cost of shareholders' meetings and so on is wasteful.
Does becoming an LLC save tax?
No. Both a stock company and an LLC are the same ordinary corporation, and the treatment of corporate tax, local tax, and consumption tax is the same. Officer compensation and social insurance also do not change. The merits are cost and effort reductions, such as public notice of financial results and officer reappointment registration becoming unnecessary, and the freedom of operation.
Doesn't an LLC lose credibility?
Recognition among business partners and consumers is somewhat lower than a stock company, and it can be a disadvantage in BtoC, hiring, and financing. On the other hand, for well-known companies like DMM and Apple it is not substantially a problem. About 30% of newly established corporations are now LLCs, and it is no longer as unusual a form as before.
Can loss carryforwards and licenses be carried over in an organizational change?
Because an organizational change is a continuation of the same corporation, loss carryforwards are in principle carried over. Licenses and permits may require re-application or a change notification depending on the type, so check with the competent authority in advance. Contracts and bank accounts can also be continued with a name change.
How much are the costs and how long does the procedure take?
The registration and license tax is a minimum of ¥60,000, and adding Official Gazette notice costs and judicial scrivener fees, the total is a guide of about ¥150,000–¥250,000. Because the creditor protection procedure takes one month or more, expect about 1–2 months overall.
Does the treatment of officer compensation and social insurance change?
No. The managing members of an LLC are officers for tax purposes, and the rules for officer compensation (such as regular fixed-amount salary) and the mandatory enrollment in social insurance are the same as a stock company.
Can I change back to a stock company later?
Yes. An organizational change from an LLC to a stock company is also possible. However, registration, public notices, and other procedures and costs are incurred again.
Summary
Reference links (sources)
This article is based on the following official information and published materials (neutral, primary sources). Because systems and fees may be revised, please check the latest content before your procedures.
- Ministry of Justice — On the procedure for establishing an LLC (in Japanese)
- e-Gov — Companies Act (organizational change, public notice of financial results, etc.) (in Japanese)
- National Tax Agency — No.5759 Corporate tax rates (in Japanese)
- Tokyo Shoko Research — Newly established "LLC" corporations in 2024 (in Japanese)
- ITmedia — DMM.com shifts to an LLC (in Japanese)
* This article is general information, not individual tax or legal advice. Please confirm decisions and procedures for an organizational change with a professional such as a judicial scrivener or tax accountant.