Yugen Kaisha (YK)
Candlefocus EditorYK’s represented a limited liability type of form of business. As such, the liability of YK’s directors and shareholders who were liable for debts or other obligations with an upper limit, as opposed to an unlimited amount, in the case of the former. This result was achieved through allowing the firm to be organized as a form of partnership between its managing members, who assumed liabilities in excess of their contribution to the capital.
YK’s were subject to fewer legal requirements than those of a KK, the YK’s major disadvantage being that it was not eligible for listing on the Tokyo Stock Exchange. Despite this, YK’s conserved certain advantages relative to KK’s, such as lower initial capital input requirements and tax exemptions. These advantages usually led to smaller firms to adopt a YK form.
The revision of the Companies Act resulted as a consequence of mounting complaints from Japan’s trading partners over the lax business regulations applied in the country until that moment. The need but also international demand to change the then current company law, confirmed Japan’s commitment to corporate reforms.
Although the abolished YK form was used until then by many Japanese businesses and the reform came with disadvantages for many companies, the amended Company Act of 2005 represented an important milestone in the modernization of the Japanese corporate law and brought the country in line with internationally accepted standards.
Overall, Yugen Kaisha was a form of limited liability company once common in Japan prior to the 2005 Companies Act, which restricted the use of YK and established joint-stock corporations and Godo Gaisha as the entities used to represent companies. The YK form had clear advantages and disadvantages, resulting mainly from its limited liability. The reform of the Company Act represented a necessary phase in Japan’s commitment to modernize its corporate laws and brought it closer to other countries’ standards.