JAPAN Trends and Developments Contributed by: Takao Shojima, Naohiro Nomura and Taiki Hirono, Anderson Mori & Tomotsune
• an investment agreement (or share subscription agreement); and • a joint venture or shareholders’ agreement among the investor, the company and its management shareholders. The investment agreement stipulates the conditions of the investment – such as the amount invested, the type and number of shares issued in exchange, the timing of the investment, the intended use of funds, conditions precedent (if any) and the representations, warranties and covenants made by the company and its managers. The joint venture agreement, by contrast, centres on the company’s governance and operations. It normally covers information and inspection rights for the inves - tor, as well as protocols for the transfer or disposal of shares held by both investors and management. Investors typically aim to maximise the efficiency of their investment by supervising the company’s opera - tions – ensuring management runs the business in the best interests of all shareholders, while also minimis- ing risk. If the business underperforms, investors may seek to sell their shares and recoup their capital. On the other hand, company management naturally prefers as much operational freedom as possible and wishes to avoid excessive control or direction from investors, while still securing sufficient funding. Therefore, when drafting a joint venture agreement for a start-up, it is crucial to strike a balance between the investor’s desire for safeguards and influence, and the company or founder’s need for flexibility in running the business. Key points in joint venture agreements for start- ups A joint venture agreement for start-ups is signed by the investors, the company and its management shareholders. Typically, investors are categorised as “major” or “minority” investors, with major investors having committed larger amounts of capital and there - fore enjoying greater rights and control compared to minority investors.
Some of the most common provisions found in such agreements include the following. Governance-related matters Nomination rights of directors and observers The major investors are typically granted the right to nominate individuals to serve as company directors or observers, based on their proportionate shareholding. This arrangement allows them to monitor and par - ticipate in the company’s key decision-making pro - cesses. In contrast, minority shareholders generally do not have such nomination rights. Reserved matters For certain critical decisions – such as issuing new shares, mergers, corporate reorganisations, major asset disposals, forming business alliances with third parties, business plan approvals or amendments to the articles of incorporation – major investors usually hold veto rights. As a result, management must seek and obtain consent from a specified number of major shareholders before proceeding with these actions. Notification and reporting requirements/provision of financial documents It is standard for the company to be required to notify all investors (both major and minority) of significant developments, such as disasters, suspension of oper - ations, insolvency or legal actions that could impact the company’s financial position. Additionally, the company must provide investors with annual finan - cial statements shortly after the fiscal year ends, along with quarterly reports, monthly balance sheets and other relevant financial documents within a set period after each reporting cycle. Inspections and audits Both major and minority investors are entitled to request reports or documents from the company or management regarding the business or its assets. They may also make direct inquiries, to which the company and management must respond promptly and thoroughly. Share-related matters Acquisition rights of investors If the company issues, sells or grants shares or rights to acquire shares (including stock acquisition rights or
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