The purpose of this paper is to investigate the relationship between an institutional change the choice of legal forms of business (such as corporations, partnerships, private limited liability companies etc.), and thus examine how legal business forms were recognized and actually used in business by using the case of Japan after World War II
The importance of legal business forms as a device to support economic development has already noted by scholars (e.g., Fogel, 1964; Guinnane et al. 2007). However, there have not been sufficient studies on how legal forms of business are recognized and actually used in business. This paper attempts to fill this research gap by analyzing the impact of institutional change after ther World War II on the choice of legal business forms empirically.
After the defeat in World War II, Japan conducted several institutional changes, including the reform of corporate law and the tax law reform around 1950 under the influence of the U.S. Those institutional changes seemed to have an impact on the use of legal forms of business. Before 1950, the corporate form was more preferred than the limited liability company form, which is similar to Gesellschaft mit beschränkter Haftung (GmbH) in Germany, but after 1950 the increasing rate of limited liability companies exceeded that of corporations.
This paper tries to find out the reason why this change occurred by investigating the difference between those two forms as well as functions of those forms in business, using the Minutes of the Diet, reports by the central and local governments , and articles by scholars. Especially, this paper focuses on several possible fucntions and changes regarding how legal business forms are actually functioning.