The Shirai Ryu was formed by a Lin Kuei warrior named Takeda. Takeda served as an assassin for the Lin Kuei before he started the Shirai Ryu. He tried to leave the clan and return to his homeland in Japan, but leaving the Lin Kuei is punishable by death. Takeda went back to Japan and taught modified versions of the Lin Kuei's tactics.
His fighting style and other skills were copied throughout Japan and eventually evolved into Ninjutsu. Takeda revealed many of the Lin Kuei secrets to his followers, which only angered the Lin Kuei even more.
As Takeda's teachings continued to spread, his followers came to be known as the Shirai Ryu. The Shirai Ryu dressed liked the Lin Kuei, but they wore yellow instead of blue. Later Takeda was killed by poison in his tea. The hostility between the two clans continued to grow after Takeda's death.