Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 22: Legislative policy of alternative forms of business organization: the case of Japanese LLCs
This chapter will raise two questions based on a comparison between the Stock Company (kabushiki kaisha, equivalent to the stock corporation in the United States) form and the LLC (godo kaisha) form in Japan. First, how do the players choose between one of these two legal forms of closely held business organizations? Second, what is the optimal legislative policy for providing a set of legal forms of closely held business organizations? To answer these questions, this chapter will focus on the different degrees of freedom of contract—i.e., the different sets of mandatory laws and enabling laws—made available by the Stock Company form and the LLC form. In particular, the chapter takes up three issues relating to freedom of contract that distinguish the two legal forms and are important for the incentive bargaining among the players. These three issues are (i) order-made membership rights, (ii) exit options, and (iii) fiduciary duties. The bargaining situation, which describes the circumstances in which players try to give incentives to each other to provide capital to the joint project (Shishido 2014c), differs depending on the type of closely held business organization. Drawing on the perspective of players in the bargaining situation, this chapter will categorize closely held business organizations into three types: (i) family firms, (ii) partnership-type firms, and (iii) VC (venture capital)-backed firms.
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