MK @ Legal Biz Leaf Admission of Partners
Unlike a Kabushiki-Kaisha (a joint-stock company), an ownership of Godo-Kaisha (a limited liability company) is not relevant to the ratio of investments and all investors equally have one voting right in principle. In addition, in many cases, unanimous consent of all partners is required to adopt a resolution (however, it is possible to stipulate otherwise in the Articles of Incorporation), which is not suitable for managing a company by receiving investments from an unspecified number of investors.
On the other hand, there are many cases where close associates or family members to be added to a Godo-Kaisha after its establishment, without the purpose of receiving investments.
There are two main ways to add partners.
Method 1: By newly investing in the company.
Method 2: By transferring an equity of existing partners.
Method 1: Investment Method
A legal entity or a person can become a partner by making a new investment in a Godo-Kaisha. In this case, (1) those who wish to become a partner shall make a contribution and (2) the Articles of Incorporation shall be amended (in principle, with the consent of all partners).
Although both (1) and (2) do not have to be done at the same time, they are usually done on the same day, since the admission of a new partners does not take effect until both are completed.
A reason for (2) an amendment of the Articles of Incorporation: The Articles of Incorporation of a Godo-Kaisha shall record “the names and addresses of the partners and the purpose and value of their investments”; thus, it should be amended whenever the new contribution to be make.
Sample of a Letter of Consent of All Partners
Name of the Company: ABC Godo-Kaisha
An existing Partner: A (Invested amount: 1 million yen)
Additional Partner: B (Investing amount: 1 million yen)
“Letter of Consent”
1. The following person shall make a capital contribution of 1million yen and join ABC Godo-Kaisha (“the Company”) as a new partner
XXX, Tokyo, Japan
B
2. The following items are to be added to Article No. X of the Articles of Incorporation, subsequently to the matter stipulated for Partner A.
XXX, Tokyo, Japan
1,000,000 yen, all executed, Limited Liability Partner B
We duly agree to the above.
September 7th, 2022
ABC Godo-Kaisha
Partner A (seal/signature)
Applicant B (seal/signature)
* In general, the applicant (new Partner) B also affixes his/her seal/signature to the document. This is understood to be a mutual guarantee of the subscriber’s declaration of intent to invest into the Company and the Company’s declaration of intent to accept such investment.
* If New Partner B is to become an executive partner in addition to a regular partner, an amendment to the Articles of Incorporation to that effect shall also be required.
Method 2. Equity Transfer Method
A legal entity or person may become a partner by receiving a transfer of an equity from an existing partner. When a partial transfer of an equity is transferred, both the transferor and the transferee shall remain as partners. On the other hand, when the entire equity is transferred, the transferor shall leave the company.
(A) a status of a partner (i.e., rights and obligations held by the partner toward the company) and (B) a share held by the partner toward the company.
The former definition (A) is to eb used when an equity is transferred to another person, and the latter definition (B) is to be used when a partner leaves the company and receive a refund of the interest.
The following procedures are required for the equity transfer:
(1) Making an agreement between the parties (transferor and transferee) to transfer equities,
(2) Obtaining approvals of all other partners, and
(3) Making amendment to the Articles of Incorporation (in principle, with the consent of all partners).
A reason for (2) obtainment of approvals all other partners:
As a general rule, a Godo-Kaisha requires all partners to be involved in the management of the company, so the relationship between the partners is vital. Therefore, this procedure allows existing partners to prevent unfavorite new partners from joining the company,
A reason for (3) an amendment of the Articles of Incorporation:
The Articles of Incorporation of a Godo-Kaisha shall record “the names and addresses of the partners and the purpose and value of their investments”; thus, it should be amended whenever the changes in contribution amount are made.
As an exception, transferor who is NOT an executive partner may transfer all or part of his/her equity to another person by obtaining only the consent of all executive partners regarding the transfer and the amendment of Articles of Incorporation.
Note: If the executive partner is an entity, it is the executive manager who consents to the transfer and the representative (CEO) of the entity who consents to the amendment.
Sample of a Letter of Consent of All Partners
Name of the Company: ABC Godo-Kaisha
An existing Partner: A (Invested amount: 1 million yen)
→Transferring 500,000 yen of equity to B
“Letter of Consent”
1. Partner A shall transfer 500,000 yen of his total equity of 1,000,000 yen to B, and B, who has accepted the transfer shall at the same time join the Company as a partner.
2. The matter regarding Partner A’s contributions stipulated in Article No. X of the Articles of Incorporation shall be amended from “1,000,000 yen” to “50,000,000 yen” and the matters regarding B shall be added as follows.
Tokyo XXXX
500,000 yen, all executed, Limited Liability Partner B
We duly agree to the above.
September 7th, 2022
ABC Godo-Kaisha
Partner A (seal/signature)
Partner B (seal/signature)
MK @ 09/07/2022
