???????? Japanese Current Status and Challenge Issues Regarding Partnership Law Reform

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????????Japanese Current Status andChallenge
IssuesRegarding Partnership Law Reform

• 2005.08.26 rev.14
• Jun Saito Ph.D. in Applied Physics

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GIST

• While the Japanese people do not know what the
  omelet is, they have just broken the egg shell.
  (An English old saying You cannot make an
  omelet without breaking the egg.
  ??????????????)
• In Japan, there is no concept of partnership, no
  actual partnership act, no common custom of
  partnership accounting, no common custom of
  partnership taxation.

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Applications of new type Partnershipin US and
Europe

1. Bundling Together LLAirBus?ASML?Nokia?Ariane
   Rocket?AMTC?AMD Fab36 LLC CoK.G.
2. Collaboration to pass over the Death Valley
   EUV-LLC?eLith-LLC?Iridium-LLC
3. Facilitating human capitals Segway-LLC?Dream
   Works LLC
4. Facilitating Early Stage IPBell Atlantic IP
   Holdings LLCVentures from Univs.(ex. Illinois
   Venture LLC)
5. Mass management of Harvest Stage IPs MPEG
   L.A. LLC

Especially venturous
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Balance Sheet Accounting v.s. Partnership
Accounting
Every thing is collateral.

• Not mandatory to account the cashable assets.
• Each partner has his own capital account.
• At each time of transaction, an allocation and/or
  a distribution is made in the capital account.
• The allocation list is filed to the tax authority
  as an information tax return.

CashableAsset
Debt

• This condition is indispensable for venture
  firms,
• because they are entities to run risks so that
  they may not necessarily be able to bring up such
  cashable assets.

Capital
Revenue
Profit
Cost
Well known to Japanese
Not-at-all-known to Japanese
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Partnership Law Reform History
1840? U.K. J.S. Mill Limited Liability entity should disclose the accounting.
1890 U.K. Partnership Act Firms with partnership accounting should have at least one partner with unlimited liability.
1892 German GmbH Act Firms with partnership accounting could be limited liability entities.
1914 U.S. Uniform Partnership Act
1938 Japan Yugen Company Act (Trial to make a GmbH-like act)
1941- 1945 Japanetc. The World War ?
1996 U.S. Uniform Limited Liability Company Act
2001 U.S. Revised Uniform Partnership Act
2005 Japan Japanese version LLP Act
2006 Japan Obsolescence of Yugen Company Act Establish Godo Company Act
Japan has started the movement!
Just started Indeed, but with sure-footedness!
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??LLC?????? ??????Partnership???
?????????New Partnership Act Comparison
Japan
Non-recourseNon-collateral
US-LLC Yugen ????obsolete in 2006 Godo ????start in 2006 J-LLP???LLPstart in Aug. 2005
Legal Person Yes Yes Yes No
limited liability BasicallyNon-recourse Non-collateral Collateral Collateral BasicallyRecourseCollateral
Accounting Partnership accounting Business accounting Not regulatedTax accounting regulated ex. asset depreciation Business accounting legal balance sheetTax accounting regulated ex. asset depreciation Business accounting legal balance sheetTax accounting regulated ex. asset depreciation
Pass-through-taxation YesIRS has not specified the accounting method (Revenue Procedure 2001-10). Unless in market segment, the accruals of deduction and taxable gain are not regulated NoFiscally non-transparent NoFiscally non-transparent Yes, butthe accruals of deduction and taxable gain are regulated
Not mandatory for asset account
In Japan, one gain, one loss, but the movement
has started.
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Prof. McCahery and Prof. Vermeulen,How about
your countries?
US-LLC Holland England European Private Company Law Model
Legal Person Yes
limited liability BasicallyNon-recourse Non-collateral
Accounting Partnership accounting
Pass-through-taxation YesIRS has not specified the accounting method (Revenue Procedure 2001-10). Unless in market segment, the accruals of deduction and taxable gain are not regulated
Please fill in the blanks.
Not mandatory for asset account
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The biggest feature of US-LLCNon-recourse and
Non-collateralLimited Liability

1. Non-recourseThe liability does not recourse to
   the partners.The partnership assumes the
   liability.
2. Non-collateralIn partnership accounting, it is
   not mandatory to account cashable assets which
   could collateralize the debt, the loan, or the
   liability.

• These two conditions are indispensable for
  venture firms.

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(Corporate Income Tax Revenue) / (Tax Revenue)
Japan US Holland German
(Corporate Income Tax Revenue) / (Tax Revenue) 24 8 10.5 4
Corporate Income Tax Rate 30 30 35 30
Fundamental Tax Corporate Income Tax Individual Income Tax Excise Excise
/GDP 2 1
?EU?????????????
http//www.ufji.co.jp/publication/sricreport/603/2
3.pdf
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The magic formula of LLCThe less, the more.
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Challenge Issues for Japanese

1. How to Introduce the concept of Partnership to
   Japanese people.
2. How to migrate from the tax revenue of Corporate
   Income to that of Individual Income or
   Consumption.

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Menace Example 1 of New type Partnership
AirBus?????Boeing????
Share()
??) http//www.jadc.or.jp/2_Fleet.pdf
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Menace Example 2 of New type Partnership ASML
Nikon Canon ????
(??)????????????????????????????
??????????????????????????2004??Winter?52?3??pp69