Yugen Kaisha (YK)

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Yugen Kaisha (YK): Definition and History

A yugen kaisha (YK) was a Japanese form of limited liability company used from 1940 until it was abolished by the 2005 Companies Act (effective May 1, 2006). After the law took effect, no new YKs could be formed and existing YKs were reorganized under the revised corporate law—commonly converting into kabushiki kaisha (KK) or the newer godo gaisha (GG) structures.

Key characteristics

  • Modeled on the German GmbH (limited liability company).
  • Typically used by small businesses.
  • Maximum of 50 shareholders (members).
  • Members were collectively required to contribute capital (commonly cited as 3 million yen).
  • Required at least one director; a full board was not mandatory.
  • Owners had limited liability but faced restrictions on transferring shares.
  • Could not offer shares to the public.
  • Accounting, capitalization, and procedural requirements were less stringent than for a KK.

Capitalization changes

  • Before 1991: a YK could be formed with relatively low capital (historically described as roughly equivalent to US$1,000).
  • After 1991: minimum capitalization requirements were raised (commonly noted as about US$30,000 under an assumed exchange parity of ¥100 = US$1, aligning with the 3 million yen figure).
  • At the same time, minimum capital requirements for a KK increased substantially.

How YK compared with other Japanese business forms

Four traditional corporate entity types in Japan:
* Gomei kaisha — general partnership
* Goshi kaisha — limited partnership
* Yugen kaisha — limited liability company (YK)
* Kabushiki kaisha (KK) — joint-stock company (standard corporation)

In practical terms, a YK functioned similarly to certain U.S. entities such as an LLC or S corporation in offering pass‑through characteristics and limited liability while imposing tighter restrictions on share transferability than a KK.

Prevalence and reputation

  • Japan has a large number of small businesses; a high percentage of firms have fewer than 20 employees.
  • After the 2005 reforms, the godo gaisha (GG) structure became the common choice for small and medium enterprises under the new law.
  • Historically, YKs were associated with smaller, less formal corporate structures, though some large companies used the form (for example, some multinational subsidiaries operated as YKs).

Legacy

The YK is now a historical corporate form. Its main relevance today is as part of the evolution of Japanese corporate law and as context for understanding how modern KK and GG structures developed from earlier entity types.