JAPAN Law and Practice Contributed by: Akira Matsushita, Norihito Sato, Hideki Ben and Nobuhiko Suzuki, Mori Hamada
7. The JV Board 7.1 Board Structure
The CA does not specifically provide for any statutory reporting requirements of the JV board to the JV mem - bers. However, under the CA, the BoD in general must report business reports and financial statements to its shareholders at the annual shareholders’ meeting. 7.3 Conflicts of Interest Generally, under the CA, if a company intends to car - ry out any transaction that results in any conflicts of interest between the company and its director, the BoD must approve the transaction. Moreover, if a director of a company intends to carry out, on behalf of themselves or a third party, any transaction in the line of business of the company, the transaction must also be approved by the BoD. Under the CA, it is not illegal per se for a person to take a seat on the JV company’s board even if they hold a position as a JV partner. However, if a JV com - pany director intends to carry out, on behalf of a JV partner, transactions with the JV company or trans - actions with any person that is in the same business category as the JV company, the transaction must be approved by the BoD of the JV company. In addition, if a JV company director is a representative director of a JV partner, transactions between the JV company and the JV partner must also be approved by the BoD of the JV company. Further, JV company directors may be liable for a breach of their duties if they deprive the JV company of any business oppor - tunity that could benefit the JV company by taking advantage of their positions as directors. In practice, since the CA alone may not sufficiently protect JV partners’ interests, transactions that result in a conflict of interest between the JV company and a JV partner frequently require the approval of the other JV partners, often as a reserved matter (see 6.2 Gov- ernance and Decision-Making ). 8. IP and ESG 8.1 Ownership and Use of IP The key IP issues when setting up a corporate JV entity include:
Typically, the BoD of a corporate JV entity is struc - tured to enable each JV partner to designate direc - tors in proportion to its shareholding ratio in the JV company. The resolution by a shareholders’ meeting is required for the appointment or removal of direc - tors. The resolution must be passed by the majority (although the AoI may require a higher threshold) of the votes of shareholders present at the meeting that has a quorum consisting of the majority (although the AoI may require a higher threshold) of the votes of all shareholders. Directors must be individuals, but there are no limitations for foreign individuals being appointed as directors. Since JV partners typically agree on the rights to appoint and remove directors in the JV agreement, weighted voting rights are not usually used. 7.2 Duties and Functions of JV Boards and Directors The principal duties of directors of Japanese com - panies are the duty of care and the duty of loyalty to the company. As a general rule, even if a director is appointed by a JV partner, the director is not exempt from their duties as a director to the JV company and the shareholders as a whole, and may in fact be conflicted regarding their duty to the appointing JV partner. However, there is a seemingly persuasive legal interpretation that such director may act for the interest of the appoint - ing JV partner regardless of their duties of care and loyalty to the JV company, if they act pursuant to the agreement made between all JV partners, including the JV agreement. The BoD of the JV company may delegate its func - tions to subcommittees to some extent under the CA. However, JV company boards do not typically delegate their decision-making powers on matters important to the JV company’s operations, in order to ensure that the JV partners maintain control over the JV company’s operations through the directors appointed by them.
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