Financial Statement of Godo-Kaisha

Financial Statement of Godo-Kaisha

The law requires all Kabushiki Kaisha (joint-stock companies) prepare a Balance Sheet, Profit and Loss Statement, Statements of Changes in Net Assets, and Tables of Explanatory Notes, which shall be approved by shareholders (or reported to shareholders under certain conditions) at the ordinary general meeting of shareholders. The documents shall be retained for 10 years.
(For more detail)

Godo-Kaisha (limited liability companies) are also required to prepare a same documents. On the other hand, unlike a Kabushiki Kaisha, these financial documents do not, in principle, need to be approved by partners. This is because these documents are prepared by executive partners, who are also qualified as partners of the company. (In the case of a Kabushiki Kaisha, directors are not necessarily shareholders.)

However, non-executive partners are also authorized by law to inspect and copy these financial statements at any time.

Possible Exceptions

The following restrictions can be set by stipulating in the Articles of Incorporation.

(i) Regulate the authority of inspection and copying of financial statements by partners to once a year at the end of the fiscal year.
*The provision that does not give any authority of inspection and copying to the partners cannot be established.

(ii) Stating the necessity of obtaining the consent of the partners with respect to such financial statements once a year at the end of the fiscal year.

Public Notice of Financial Statements

A Kabushiki Kaisha is obligated to publicly announce the financial statements approved at the ordinary general meeting of shareholders. On the other hand, there is no such provision for Godo-Kaisha. This is one of the advantages of establishing a Godo-Kaisha that the annual cost of public notice can be kept low. On the other hand, a Godo-Kaisha shall allow creditors to inspect financial statements upon request during business hours. This is to ensure the credibility of the transaction to creditors, as there is no obligation to give such public notice.

Shareholders’ Equity and Partners’ Equity

The following are the summary of shareholders’ equity in a Kabushiki-Kaisha

In contrast, the following is a summary of the partners’ equity in a Godo-Kaisha.

Note that there is no “capital reserve” or “Legal reserve of retained earnings” as stipulated in a Kabushiki-Kaisha. In addition, there are no “treasury stock” since a Godo-Kaisha is not allowed to acquire the equity of each partner (i.e., the equity is simply eliminated when it is acquired).

Record of each partners’ equity

In a Godo-Kaisha, the records of the partners’ equity shall be kept according to each partner as described above. This is because when a partner makes a capital contribution or a refund, only the amount recorded for that partner will increase or decrease.

For example, in a Godo-Kaisha, each partner may demand a dividend of profits from the company at any time. In this regard, dividends are allowed only within the amount of retained earnings recorded for the requesting partner, and not from the amount of retained earnings of the other partners.

Example of equity record chart for each partner

Unit: Yen

If B has requested a dividend of 300,000 yen of profit in the past, B’s retained earnings will be 0 yen, and B will not be able to request a further dividend thereafter. On the other hand, A will still have room for a dividend of 700,000 yen.

MK @ 09/23/2022