JAPAN Law and Practice Contributed by: Akira Matsushita, Norihito Sato, Hideki Ben and Nobuhiko Suzuki, Mori Hamada
tion precedent, although a force majeure clause is not that often provided. 5.4 Legal Formation and Capital Requirements To set up a JV vehicle, JV partners can use an existing company or establish a new company. When an exist - ing company is used as a JV vehicle, the JV partners can acquire the existing company’s shares from the existing company’s shareholders or subscribe for new shares of the existing company. Under Japanese law, there are no minimum capital contribution require - ments for companies. As a general rule, there are no requirements for the participation of foreign entities in Japanese JV com - panies. However, as discussed in 3.3 Sanctions, National Security and Foreign Investment Controls , the FDI regulations under the FEFTA apply to foreign investments. Additionally, there are some restrictions on the shareholding holding by foreign investors in certain businesses – such as airlines and the broad - casting business – under laws regulating those spe - cific business sectors. As a part of a JV vehicle’s setting-up, JV partners often transfer their assets, rights, liabilities, contracts or employees to the JV company. This can be imple - mented through: • a business transfer or asset transfer through a con - Depending on the circumstances (such as the value of the assets to be transferred), the following may be required: • approval by shareholders’ meetings of the transfer - ring or transferee company; and • with respect to contributions in kind, an investiga - tion by an inspector appointed by the court regard - ing the value of assets to be contributed. As discussed in 6.5 Other Documentation , in some cases the JV partners and the JV company enter into tractual buy-sell agreement; • a statutory company split; or • a contribution in kind.
ancillary agreements in addition to the JV agreement, such as: • IP licence agreements; • lease agreements;
• employee secondment agreements; • supply or distribution agreements; and • outsourcing agreements.
6. Core Terms of a JV Agreement 6.1 Drafting and Structure of the Agreement As discussed in 2. JV Structure and Strategy , a stock company ( kabushiki-kaisha ) is often chosen as the legal entity of the JV. In this case, the AoI and the JV agreement are the main documents. A limited liability company ( godo-kaisha ) is rarely cho - sen, partly because it is necessary to stipulate in the AoI all the exceptions to the default rules under the CA; otherwise, such exceptions are inapplicable. For example, if the parties agree on certain reserved mat - ters (eg, veto rights), these matters must be stated in the JV agreement and the AoI since the default rule is that, unless otherwise stated in the AoI, business matters are decided by a majority of all members (or a majority of executive members, if appointed in accordance with the AoI), and as an exception, all reserved matters must be stipulated in the AoI. Therefore, the JV agreement of a stock company ( kabushiki-kaisha ) is discussed here. The main terms that must be covered by the JV agreement are: • object; • capitalisation; • composition of board, management and statutory auditor (JV partners’ rights to appoint them); • reserved matters; • business plan; • financing; • dividend policy; • covenants of JV partners, including covenants to not compete with the JV’s business and to not solicit the JV’s management and employees; • deadlocks;
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