Joint ventures in Japan: overview

A Q&A guide to joint ventures law in Japan.

The Q&A gives a high level overview of joint ventures law, including regulation of joint ventures, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.

This Q&A is part of the Joint Ventures Law Global Guide.

Contents

Domestic company joint ventures (JVs)

Regulation

1. Are JVs expressly regulated?

JVs are not expressly regulated under Japanese law. JVs are regulated as certain types of:

  • Partnerships under the Civil Code (Act No. 89 of 1896) and various other laws.

  • Companies under the Companies Act (Act No. 86 of 2005).

 

Types

2. Which types of JV are allowed?

Contractual

Contractual JVs can be established in the form of a partnership agreement. The Civil Code provides that a partnership contract becomes effective when each of the parties promises to engage in joint business by making a contribution. The Civil Code regulates some aspects of the partnership agreement.

Under the Civil Code, the partners can agree on the:

  • Persons that are delegated to manage the business under the partnership agreement.

  • Proportions of the partnership's profits and losses to be distributed to the partners.

  • The duration of the partnership.

If the partnership agreement does not provide these items, the regulations of the Civil Code apply. The Civil Code provides that:

  • The management of the business must be determined by a majority of the partners.

  • The proportions of the partnership's profits and losses to be distributed to the partners must be determined in proportion to the value of each partner's contribution.

  • The withdrawal and expulsion from the partnership, and the dissolution and liquidation of the partnership, must be in accordance with the Civil Code.

It is generally interpreted that the contractual status, rights and obligations of a partner can be transferred only on obtaining approval from all the other partners.

In terms of derived forms of partnership under the Civil Code, there are:

  • Limited partnerships for investment under the Limited Partnership Act for Investment (Act No. 90 of 1998), where both limited partners and general partners exist and the management of the business under the limited partnership agreement is determined by a majority of the general partners.

  • Limited liability partnerships under the Limited Liability Partnership Act (Act No. 40 of 2005), where only limited partners exist and the management of the business under the limited liability partnership agreement is determined by the consent of all limited partners.

  • Anonymous association (Tokumei Kumiai) business arrangements under the Commercial Code (Act No. 48 of 1899) that resemble a partnership and are contractual arrangements that are used to form business enterprises. Under a Tokumei Kumiai business arrangement, an investor (silent partner) agrees with a business operator to invest in the business of the business operator and the business operator agrees to distribute profits from the business. The silent partners of the anonymous association (Tokumei Kumiai) cannot engage in or conduct the business of the anonymous association (Tokumei Kumiai) nor represent the business operator.

Corporate

A corporate JV can be established as a:

  • Stock company (Kabushiki Kaisha) (KK).

  • A limited liability company (Godo Kaisha) (GK).

Both kinds of company are incorporated by registering the incorporation at a registration office (Legal Affairs Bureau).

Both KKs and GKs consist only of shareholders whose liabilities are limited to their contribution. While the Companies Act provides fairly wide options in relation to the management structure for both KKs and GKs, the general expectation is that:

  • A KK is managed by directors rather than its shareholders.

  • A GK is managed by its members.

Regardless of whether a company is a KK or a GK, it is common for shareholders to conclude a shareholders' agreement where they agree on the rights and obligations of the shareholders and the governance of the JV.

The most common way to incorporate a corporate JV is to incorporate a KK, and a GK is rarely used as a method of establishing a JV.

Most JVs are structured as KKs rather than as:

  • Other types of corporate JVs.

  • Various types of contractual JVs, such as partnerships.

Accordingly, the answers in this chapter mainly focus on KKs, unless otherwise specified.

 
3. Are corporate JVs subject to the corporate law?

Corporate JVs are subject to the Companies Act (Act No. 86 of 2005).

 

Formation and registration

4. Is the use of foreign language in a JV's founding documents (both corporate and contractual) restricted?

Under the Companies Act, a company can use characters from the English alphabet in its company name. Other than that, the Companies Act is silent on whether or not a stock company (KK) can use a language other than Japanese. However, it is generally interpreted that certain founding documents necessary for the incorporation of a KK under the Companies Act (for example, the articles of incorporation and the minutes of organisational meetings) must be produced in Japanese. A KK must also submit certain statutory documents with a Legal Affairs Bureau in order to be incorporated, and Legal Affairs Bureaus will only accept documents that have been prepared in Japanese.

To form a partnership under the Civil Code, there are no restrictions on using a foreign language to conclude a partnership agreement under the Civil Code. However, to establish a limited partnership for investment under the Limited Partnership Act for Investment (Act No. 90 of 1998) and to establish a limited liability partnership under the Limited Liability Partnership Act (Act No. 40 of 2005), practically speaking, a partnership agreement necessary for the establishment of a partnership under these Acts must be produced in Japanese, since, as is the case with a KK, a limited partnership under these Acts must submit a partnership agreement with a Legal Affairs Bureau for its registration and Legal Affairs Bureaus will only accept documents prepared in Japanese.

 
5. Are public officers (for example, public notaries) involved in a JV's formation procedure?

To incorporate a stock company (KK) under the Companies Act, the initial articles of incorporation of the company must be notarised by a public notary.

Apart from the exceptions in Question 6, an inspector (kensayaku) must be appointed by a court if:

  • The subscription of shares is made by contribution in-kind.

  • An incorporator makes an agreement on behalf of the company under which the company purchases certain properties after its incorporation.

  • The incorporator is paid the compensation (if any).

  • The company pays any costs for its incorporation other than those specified in the Companies Act.

The inspector must conduct any necessary investigations on its fairness and submit the report of the investigation to the court.

Finally, under the Companies Act, both KKs and limited liability companies are incorporated by registering their incorporation with a Legal Affairs Bureau.

 
6. Are JVs registered with any local registries? Are public sector bodies' authorisations required for a JV's establishment?

Local registries

For the incorporation of a stock company (KK), the Companies Act (Act No. 86 of 2005) adopts a system of automatic incorporation. That means, if the statutory requirements for the incorporation of a KK, such as the preparation of the articles of incorporation and the election of directors, are satisfied, the KK can be incorporated without the need to obtain authorisation from any public sector bodies by registering its incorporation with a Legal Affairs Bureau.

When incorporating a KK, an inspector must be appointed by a court if the subscription of shares is made by contribution in-kind, and the inspector must conduct the necessary investigations on the fairness of the contribution in-kind and submit the report of the investigation to the court (see Question 5). However, the inspector's investigation is unnecessary where:

  • The total value of the contribution in-kind specified in the articles of incorporation does not exceed JPY5 million.

  • The contribution in-kind is securities with a market price and the value of it specified in the articles of incorporation does not exceed its market price.

  • The verification of an attorney, a legal professional company, a certified public accountant, an auditing firm, a tax accountant or a tax accountant corporation is obtained on the reasonableness of the value of the contribution in-kind specified in the articles of incorporation.

Public sector bodies

Under the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 1947) (Anti-Monopoly Act), the establishment of a JV by any of the following routes falls under the provisions of the Anti-Monopoly Act and must be notified in advance to the Japan Fair Trade Commission (JFTC):

  • Merger.

  • Company split.

  • Share transfer by multiple companies.

  • Business transfer.

This means that the establishment of a JV must be notified to the JFTC in advance in the following cases:

  • For the establishment of a JV by merger, if the total amount of domestic sales of any of the JV parties exceeds JPY20 billion, and the total amount of domestic sales of another JV party exceeds JPY5 billion. The total amount of domestic sales means the total of:

    • domestic sales (that is, the amount of products and services that are provided domestically) of a company;

    • domestic sales of the corporate group to which the company belongs (that is, the company's subsidiaries, the company's parent company that is not a subsidiary of another company and the subsidiaries of the parent company).

  • For the establishment of a JV by joint incorporation-type company split:

    • if the total amount of domestic sales of the JV parties that will transfer the whole of its business (the whole transfer company) exceeds JPY20 billion and the total amount of domestic sales of another JV party that will be the whole transfer company exceeds JPY5 billion;

    • if the total amount of domestic sales of the JV party that will be the whole transfer company exceeds JPY20 billion and the domestic sales amount of the relevant part of business of another JV party that will transfer the substantial part of its business (the part transfer company) exceeds JPY3 billion;

    • if the total amount of domestic sales of the JV party that will be the whole transfer company exceeds JPY5 billion and the domestic sales amount of the relevant part of business of another JV party that will be the part transfer company exceeds JPY10 billion;

    • if the domestic sales amount of the relevant part of business of the JV party that will be the part transfer company exceeds JPY10 billion and the domestic sales amount of the relevant part of business of another JV party that will transfer the part of its business exceeds JPY3 billion.

  • For the establishment of a JV by abortion-type company split:

    • if the total amount of domestic sales of a splitting company that will be the whole transfer company exceeds JPY20 billion and the total amount of domestic sales of the succeeding company exceeds JPY5 billion;

    • if the total amount of domestic sales of a splitting company that will be the whole transfer company exceeds JPY5 billion and the total amount of domestic sales of the succeeding company exceeds JPY20 billion;

    • if the domestic sales amount of the relevant part of business of a splitting company that will be the part transfer company exceeds JPY10 billion and the total amount of domestic sales of the succeeding company exceeds JPY5 billion;

    • if the domestic sales amount of the relevant part of business of a splitting company that will be the part transfer company exceeds JPY3 billion and the total amount of domestic sales of the succeeding company exceeds JPY20 billion.

  • For the establishment of a JV by share transfer by multiple companies, if the total amount of domestic sales of any of the JV parties exceeds JPY20 billion and the total amount of domestic sales of another JV party exceeds JPY5 billion.

  • For the establishment of a JV by business transfer:

    • if the total amount of domestic sales of a company to which any business is assigned (the assignee company) exceeds JPY20 billion and the assignee company succeeds to the whole of the business of the assignor company whose domestic sales amount exceeds JPY3 billion;

    • if the total amount of domestic sales of the assignee company exceeds JPY20 billion and the assignee company succeeds to the substantial part of the business or whole or substantial part of the fixed assets used for the business of the assignor company, the domestic sales amount of the business or fixed assets subject to the transfer exceed JPY3 billion.

 
7. What other formal requirements must be complied with to validly constitute a JV?

A stock company is incorporated by registering its incorporation with a Legal Affairs Bureau under the Companies Act (see Question 5).

 

Permitted markets

8. Can the JV instrument be used in every market? Are there any restrictions to be considered and carefully assessed before investing?

JV investment is not prohibited in any field of the economy in Japan. However, the restrictions on foreign investments in certain fields must be carefully assessed and taken into consideration before investing (see Question 25).

 

Purpose

9. Can a JV be established with any purpose?

A contractual JV (a partnership under the Civil Code) can be established for any purpose other than those purposes deemed illegal. A limited partnership for investment must be established for the investment purposes specified in the Act, while a limited liability partnership and an anonymous association (Tokumei Kumiai) business arrangement can be established for any purpose if the purpose is commercial and not illegal.

A corporate JV can be established for any purpose if the purpose is:

  • Commercial.

  • Not illegal.

  • Objectively defined and concrete

 

Share capital and participation

10. What possible forms of participation are there in a JV's share capital? How can a JV member contribute and are there statutory limits on the possibility to make contributions in kind?

Forms of participation

The share capital of a JV can be contributed in cash or using any property other than cash.

Contributions

With a stock company (KK), only the incorporator can contribute the share capital using property other than cash at the incorporation of the company. At the issuance of shares after the incorporation, the share capital can be contributed using any property other than cash by any person by the resolution of the shareholders' meeting or the board of directors. When the share capital of a KK is contributed using properties other than cash, an inspector (kensayaku) must be appointed by a court and the inspector must conduct the necessary investigations on the fairness of the contribution in kind and submit the report of the investigation to the court, except in cases that fall within the exceptions (see Question 6).

 
11. Can a corporate JV's share capital be indicated by making reference to a foreign currency?

The Corporate Accounting Rules (Ordinance of the Ministry of Justice No.13 of 2006) provide that if the amount for shares is paid with foreign currency then the amount paid in for shares should be calculated using the exchange rate as of the payment date. Accordingly, although the amount for shares can be paid with foreign currency, the amount must be indicated in Japanese Yen.

 

Duration and limits on membership

12. Are there statutory limits on a JV's duration?

A corporate JV can freely set its period of duration in the articles of incorporation.

 
13. Are there statutory limits on the number of members participating in a JV?

A stock company can be established with only one shareholder and there is no maximum number of members. As for a contractual JV (a partnership under the Civil Code), under the Civil Code such a JV must be terminated if the number of partners is one.

 

Public sector bodies

14. Can a public sector body enter into a JV agreement? Subject to what conditions? In particular, do public private partnerships (PPP) laws and regulations apply?

The Japanese government can own shares in certain stock companies (KKs). The law does not expressly restrict the government from putting its capital into any entity as long as the parliament approves the government's budget that includes the investment, although there are not many cases where the government owns shares in KKs. In some of the cases where the government owns shares in a KK, the KK initially performed public services and was then subsequently privatised and the government then owns a portion of its shares. In certain cases where the government puts capital into such KKs at their incorporation, the KKs are deemed as being established as "special government-affiliated corporations" (tokushu-hojin), which are incorporated based on a specific law.

  • With contributions from local governments, there are many entities whose shares a are owned by local government (joint public-private ventures). Under the Local Autonomy Act (Act No. 67 of 1947), for a local government to take a stake in a JV, they must obtain the approval of the local assembly on the budget that includes the investment. After making a contribution to a JV, depending on the shareholding ratio that the local government owns, the local government can exercise certain control over the JV as the contribution is made using public funds, including:

  • Where the local government owns 25% or more of the shares in the JV, an audit committee member appointed by the local government can conduct an audit over the financial matters of the JV. Where the local government owns 50% or more of the shares in the JV, a head of the local government can:

    • request the JV to report its income and expenses and a forecast;

    • conduct an investigation on the execution of its budget;

    • request the JV to take appropriate measures based on the local government's investigation and the JV's report.

 

Non-competition and anti-trust clauses

15. Are there statutory constraints on the use of non-competition or anti-trust clauses in a JV agreement?

There are no statutory constraints on the use of non-competition or anti-trust clauses in a JV agreement. It is common for JV agreements to have provisions that specify the non-competition obligations of the JV members during and following the termination of the JV agreement.

Regarding the validity of the non-competition clauses both during the period of effectiveness of the JV agreement and following the termination of the JV agreement, there are no statutory constraints on JV parties' non-competition obligations and no established court precedents on this issue, although it is generally interpreted that such non-competition clauses should be reasonable to be valid and enforceable. Courts decide the validity of the non-competition clauses taking into consideration various factors, such as the:

  • Length of time of the obligation.

  • The geographical extent of the obligation.

  • The scope of the restricted business.

For anti-trust law issues see Question 18.

 

De facto company/partnership

16. Must the contractual JV satisfy any conditions to avoid falling within the definition of de facto company/partnership?

A JV does not have to satisfy any conditions to avoid falling within the definition of a de facto company. This is because under the Companies Act, a stock company is incorporated only by registering its incorporation with a Legal Affairs Bureau.

 

Limiting member liability

17. Can a JV agreement provide that a JV member can participate without incurring any risk, loss or reward?

With a corporate JV, the shareholders' liabilities are limited to the amount that they initially pay in. This means they assume the risk and loss to the extent of the amount they initially paid in. Accordingly, a JV member cannot participate in a venture without incurring in any risk or loss for a corporate JV, provided, however, that the shareholders otherwise agree by the shareholders' agreement. As for profit sharing, if a JV is a stock company (KK), the JV can issue class shares without a dividend by providing for the issuance of such class shares in its articles of incorporation. Other than issuing class shares, a KK cannot pass a resolution to distribute profits in a way that violates the principle of shareholder equality, such as distributing some profits to some shareholders while distributing no profits to the other shareholders who own the same class of shares.

 

Anti-trust

18. Do any anti-trust rules, guidelines or policies apply to a JV agreement?

The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 1947) (Anti-Monopoly Act) prohibits acts that substantially restrict competition in a particular field of trade as well as unfair business practices.

Under the Anti-Monopoly Act, if the Japan Fair Trade Commission (JFTC) determines that the establishment of a JV substantially restricts competition in a particular field of trade or falls under unfair business practices, the JFTC can issue a cease and desist order against the JV under the Anti-Monopoly Act. In determining whether a JV substantially restricts competition in a particular field of trade, there are two guidelines established by the JFTC:

  • Guidelines to Application of the Anti-Monopoly Act Concerning Review of Business Combination (Business Combination Guideline).

  • Guidelines Concerning Joint Research and Development under the Anti- Monopoly Act (R&D Guideline).

The Business Combination Guideline provides the safe harbour rule. The Business Combination Guideline uses the concept of the Herfindahl-Hirschman Index (HHI), which is, in principle, calculated by summing the squared market share of each business operator. The safe harbour rule, which the Business Combination Guideline provides, applies where:

  • The HHI after the establishment of a JV is 1,500 or less.

  • The HHI after the establishment of a JV is over 1,500 but 2,500 or less and the increase in the HHI is 250 or less.

  • The HHI after the establishment of a JV is over 2,500 and the increase in the HHI is 150 or less.

If a JV does not fall under the safe harbour rule, the JFTC determines whether or not the establishment of the JV substantially restricts competition in a particular field of trade, taking into consideration the following factors:

  • The market position of the JV and its group companies, and the circumstances surrounding its competitors.

  • The status of transactions such as the possibility of knowing the business terms of competitors, the past market share, and the past fluctuation in prices.

  • Whether or not foreign importers do, or are likely to, operate in the market.

  • The existence of barriers to entry.

  • The existence of competitive pressures from contiguous markets.

  • The efficiency of the business and the business circumstances of the JV and its group companies.

The R&D Guideline applies to JVs that perform joint research and development. The R&D Guideline regulates:

  • The substantial restrictions on competition in the product market and technology market.

  • Any private monopoly with respect to the technology.

  • Agreements concerning the performance of joint research and development (R&D).

In relation to the substantial restrictions on competition, the JFTC determines whether or not the establishment of a JV substantially restricts competition, taking into consideration the:

  • Number of participants in the market and their respective market shares.

  • The nature of the research.

  • The necessity for joint research.

  • The duration and scope of the joint research.

In relation to the private monopolies, the R&D Guideline provides that if the following occur then the joint research may be deemed to create a private monopoly with respect to the technology:

  • The total market share of the participants is substantially high.

  • The joint research is performed for the purpose of developing a technology that is essential for the business of the participants in the joint research.

  • Any participant excluded from the joint research may have difficulty in performing its business due to such exclusion and may thereby be excluded from the market.

In relation to agreements on joint R&D, the R&D Guideline categorises:

  • Arrangements that in principle do not fall under unfair business practices (for example, the prohibition on the participants conducting independent research on the same topics as those of the joint research during the period of the joint research).

  • Arrangements that can fall under unfair business practices (for example, the prohibition on the participants' introduction of a technology similar to the technology which is the purpose of the joint research beyond the scope necessary for the joint research).

  • Arrangements that are at high risk of falling under unfair business practices (for example, prohibition on the participants conducting independent research on the same topics as those of the joint research after the period of the joint research).

 

Governance and limits on directors

19. Can the parties to a JV freely regulate the JV or are they subject to certain restrictions?

The parties of a JV are free to regulate the JV through a shareholders' agreement in relation to various matters, including corporate governance matters such as the:

  • Nomination of directors.

  • Shareholders' veto for material business issues.

  • Decision making method in case of a dead-lock.

Some of these issues are reflected in the articles of incorporation of the JV. Separately, the issuance of class shares whose voting rights, rights to receive dividend distributions and certain other rights are different from those of common shares is regulated under the Companies Act.

JV members can provide loans to the JV, subject to the Act for the Control of Moneylending Business (Act No. 32 of 1983), which regulates money lending businesses. However, this does not apply to loans from a JV member to the JV which satisfies certain requirements.

As for a limited liability company and a partnership, in principle the partners are relatively free to regulate the JV on various matters.

 
20. Are there limits or restrictions on the eligibility of an individual as a member of the board of directors/statutory auditor?

The Companies Act provides that the following persons, among others, are not qualified to be a director or a statutory auditor:

  • An adult ward.

  • A person under curatorship.

  • A person that is treated in a similar manner to the last two points under foreign laws and regulations.

  • A person that has been sentenced to a penalty for violation of the provisions of the Companies Act and two years have not elapsed since the execution of the sentence.

In addition, a corporate auditor of a stock company (KK) cannot concurrently act as a director, officer or employee of that KK or any of its subsidiaries.

Under the Companies Act, there are no restrictions on nationality. Under certain laws such as Civil Aeronautics Act (Act No. 231 of 1952), Ship Act (Act No. 46 of 1899) and Radio Act (Act No. 131 of 1950), when certain ratios of the officers or the representatives are non-Japanese, the governmental authority can not provide a licence or approval necessary to conduct the relevant business.

 

Termination

21. What legal regime applies to a JV's termination? Can a JV be terminated for just cause on request of one party?

Under the Civil Code, a contractual JV (a partnership under the Civil Code) is terminated:

  • On the successful completion of the business that is its object, or by such successful completion being rendered impossible.

  • If any of the partners requests that the partnership be terminated in cases where there are unavoidable grounds for such termination (under the Civil Code, a partner can request that the partnership be terminated only if there are unavoidable grounds).

  • On the expiration of the duration of the partnership that is specified in the partnership agreement.

  • On the occurrence of any of the grounds for termination specified in the partnership agreement.

  • By the unanimous agreement of all partners.

  • If the number of partners becomes one.

Accordingly, unless the partnership agreement stipulates one party's unilateral termination as the grounds for termination of the JV, one party cannot unilaterally terminate the partnership in the absence of unavoidable grounds for such termination.

Under the Companies Act, a stock company (KK) is dissolved on:

  • The expiration of the duration of the company provided for in the articles of incorporation.

  • The occurrence of any of the grounds for dissolution provided for in the articles of incorporation.

  • A resolution for the dissolution of the company being passed by a shareholders' meeting (for a limited liability company, unanimous consent with respect to the same of all the partners is required).

  • A merger (limited to cases where the company is liquidated as a result of the merger).

  • A ruling to commence bankruptcy proceedings.

  • The rendering of a judgment that orders the dissolution of the company pursuant to the provisions of the Companies Act.

Consequently, one party cannot unilaterally terminate a corporate JV unless it puts forward a resolution for the dissolution of the JV at the shareholders' meeting and the resolution is passed. The resolutions of the shareholders' meetings of a KK to dissolve the company must be made by a majority of two-thirds (or a higher proportion where this is provided for in the articles of incorporation) or more of the votes of the shareholders present at the meeting. The shareholders holding a majority (where a proportion of one-third or more is provided for in the articles of incorporation, such proportion or more) of the votes of the shareholders that are entitled to exercise their votes at such shareholders meeting must be present. In addition to the above requirements, JVs are not prohibited from providing additional requirements for resolutions in the articles of incorporation (for example, a requirement that a resolution must be approved by a certain number of shareholders).

The termination of a JV can occur by the transfer of shares to the:

  • Other party(s) or a third party.

  • JV itself.

For the first bullet above, the transfer of shares is usually restricted by the articles of incorporation of the JV in requiring the approval of the board of directors. A shareholders' agreement normally restricts the transfer of shares by the parties, provided, however, that it is also common that a shareholders' agreement has certain provisions, such as the right of first refusal or tag along rights, which presuppose the case where any of the parties can exit the JV unilaterally.

For the second bullet above, under the Companies Act there are some statutory restrictions when a company itself obtains any of its shares, such as the necessity of a resolution of the shareholders' meeting and the limitation of the total acquisition price in the distributable amount, which is defined in the Companies Act as the amount a company can distribute to the shareholders as dividends.

 
22. Is the termination of a JV agreement subject to any public sector body's approval?

The termination of a JV agreement is generally not subject to any public sector body's approval and a stock company can be dissolved on the occurrence of any of the grounds for dissolution provided for in its articles of incorporation, by a resolution of a shareholders' meeting or by the unanimous consent of all the partners (see Question 21).

 

Choice of law and jurisdiction

23. Are there constraints on the choice of the law and the jurisdiction applicable to a JV?

To establish a corporate JV, the JV must be established in accordance with the Companies Act (unless the governing law of the shareholders' agreement does not require Japanese law).

With a partnership agreement, the parties to the agreement can freely choose the jurisdiction under which any conflicts arising with respect to the agreement should be resolved, but the governing law of the partnership agreement, if it is concluded under the Japanese legal structure, must be Japanese law.

 

JVs with foreign members

Validity and authorisation

24. What are the rules relating to validity and authorisation of JVs with foreign parties?

Validity

A JV with foreign parties is allowed.

Limits

There is no requirement of a minimum or maximum number of parties who have to be local, provided (unless the nationality requirement for officers under certain laws exists (see Question 20)).

Authorisation

No authorisation is required for a foreign entity or person to be a JV partner.

 

Effect of foreign membership

25. Are any of the rules relating to domestic company JVs (see Questions 1 to 23) different for JVs with members incorporated under, or governed by, the laws of a foreign country?

There are two kinds of statutory restrictions concerning nationality that may relate to the establishment of a JV:

  • Restrictions on the foreign investments under the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949).

  • Restrictions on foreign investments in certain fields of business, such as the:

    • telecommunications business;

    • broadcasting business;

    • consigned freight forwarding business;

    • banking business.

In relation to restrictions under the Foreign Exchange and Foreign Trade Act, an advance notice must be provided to the relevant authority if, among others:

  • The nationality of a foreign investor is not one of those specified in the Act (not the US, the UK or one of the other 161 countries specified in the Act).

  • The business purposes of the company into which the foreign investment is made fall under those specified by the Act (for example, manufacturing of weapons and aircrafts, crop farming, livestock agriculture, and so on).

An entity that provides an advance notice to the relevant authority in accordance with the Foreign Exchange and Foreign Trade Act cannot make the proposed investment, in principle, for 30 days after the relevant authority receives the notice.

Restrictions in relation to certain fields of business are, for example:

  • The governmental authority will not provide a licence or approval necessary to conduct certain business.

  • A company must refuse a request from non-Japanese entities that have obtained the company's shares to register the share transfer.

  • Non-Japanese entities do not have voting rights at the shareholders' meeting.

 

Economic or financial incentives

26. Are there economic or financial incentives for foreign direct investments in a JV?

In order to facilitate investments into Japan, the government offers several incentive programmes. For example, in order to promote activities to attract research, development and supervisory bases of global enterprises, the Act on Special Measures for the Promotion of Research and Development Business by Specified Multinational Enterprises (Act No. 55 of 2012) was brought into force for global enterprises that intend to establish an affiliated company in Japan with the aim of newly engaging in research and development (R&D) business or supervisory business. Under this programme, certain tax breaks, reduction of patent examination fees and other incentives are applied to new R&D and headquarters operations conducted in Japan by global companies certified by the relevant minister.

 

Minimum investments/contributions

27. Are there mandatory minimum equity investments or contributions in kind thresholds for a foreign JV member?

There are no mandatory requirements on minimum equity investments or contributions in kind thresholds for a foreign JV member.

 

The regulatory authorities

Japan Fair Trade Commission (JFTC)

Main activities. The JFTC is an administrative commission that enforces the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 1947) (Anti-Monopoly Act) and its related laws (including the merger filing procedures and leniency programmes). The JFTC announces various guidelines to clarify its views regarding the Anti-Monopoly Act and its related laws from time to time.

W www.jftc.go.jp/en/index.html



Online resources

e-Gov

W http://law.e-gov.go.jp/cgi-bin/idxsearch.cgi ( www.practicallaw.com/0-522-2005)

Description. This website provides Japanese laws and is maintained by the Ministry of Internal Affairs and Communications. Only the original Japanese texts are available.

Japanese Law Translation

W www.japaneselawtranslation.go.jp/help/?re=02

Description. The website provides the translations of Japanese laws maintained by the Ministry of Justice. Only the original Japanese texts of the laws have legal effect and the English translations are to be used for guidance only. Some of the translations are potentially out-of-date or tentative.



Contributor profiles

Yuichiro Nukada, Partner

Anderson Mori & Tomotsune

T +81 3 6888 1110
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Professional associations/memberships. Dai-ni Tokyo Bar Association; International Bar Association; Closely Held and Growing Business Enterprises Committee, Young Lawyers Liaison Officer.

Publications.

  • The Corporate Governance in Foreign Countries - Comparison among UK, Germany, France, Netherlands, Spain and Italy, Monthly Journal of Japan Audit & Supervisory Board Members Association, Vol. 618 (October 2013).
  • Mergers & Acquisitions (Japan Chapter) (European Lawyer Reference, 2012) (co-author).

Shigeki Tatsuno, Partner

Anderson Mori & Tomotsune

T +81 3 6888 1124
F +81 3 6888 3124
E shigeki.tatsuno@amt-law.com
W www.amt-law.com/

Professional qualifications. Japan, 2002; New York, US, 2008

Areas of practice. M&A; corporate; finance; real estate; sports and entertainment; business international transactions.

Languages. Japanese, English

Professional associations/memberships. M&A; corporate.

Publications.

  • Japanese cross-border M&A (Financier Worldwide website) (February 2015) (co-author).
  • Funds: Private Equity, Hedge and All Core Structures (Japan Chapter) (Wiley 2014) (assisted with publication).

Yoichiro Yukimura, Partner

Anderson Mori & Tomotsune

T +81 3 6888 5817
F +81 3 6888 6817
E yoichiro.yukimura@amt-law.com
Wwww.amt-law.com/

Professional qualifications. Japan, 2004; New York, US, 2013

Areas of practice. M&A; corporate; finance.

Languages. Japanese, English

Professional associations/memberships. Dai-ni Tokyo Bar Association.

Publications.

  • Q&A: Strategies for Corporate Law Practice in Asia and Emerging Countries (Shoji Homu, 2013) (co-author).
  • Corporate Governance in different countries (No. 7) - Singapore, Gekkan Kansayaku, Vol.594 (January 2012).

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