JAPAN Trends and Developments Contributed by: Takao Shojima, Naohiro Nomura and Taiki Hirono, Anderson Mori & Tomotsune
Points to note If any contract earmarked for transfer contains a clause making company splits a trigger for termi - nation, explicit consent from the counterparty to an agreement containing such a clause is required. The joint venture agreement should set this out as a condi - tion precedent. When contracts are governed by foreign laws that do not recognise company splits, the consent of the counterparties to such contracts may also be needed. For transfer-targeted employees not primarily engaged in the transferred business, or if the intention is to leave behind staff who are primarily engaged in the transferred business, such employees have a statuto - ry right to object. If they do so, the respective transfer or leaving behind of said employees is not possible; thus, companies commonly hold pre-transfer meet - ings to secure these employees’ understanding and consent, a process also set as a pre-closing covenant in the joint venture agreement. Conclusion Recent legal developments and judicial precedents in Japan have brought greater clarity to the structuring and operation of joint ventures. For start-ups – key engines of innovation in fields such as AI, IoT, fintech and robot - ics – the need for clear, robust joint venture agreements is especially pressing. These agreements must carefully balance investor protections (such as nomination rights, vetoes on critical matters and information/reporting requirements) with the founders’ need for operational flexibility. When a joint venture involves a company split, the process provides a streamlined mechanism for transferring assets, contracts and employees, which is advantageous for start-ups that are scaling rapidly or restructuring. Nevertheless, practitioners must remain vigilant regarding contract clauses and employee objec - tions that could require additional consent. As the start- up ecosystem expands – supported by government ini - tiatives, public and private investment and collaborative incubators – the importance of well-crafted legal agree - ments and proactive risk management in joint ventures grows. Overall, evolving legal standards reinforce the need for start-ups and their investors to adopt sophis - ticated, forward-looking practices when forming joint ventures in Japan.
move to the receiving (successor) company by opera - tion of law. Importantly, this means it is usually not necessary to obtain the consent of the parties to the contracts being transferred, nor from the employees – something that is generally required in a typical busi - ness transfer. Using a company split to establish a joint venture When setting up a joint venture, companies often need to transfer significant assets, contracts and staff to the new joint venture. In such cases, the company split process is particularly advantageous, as it avoids the burdensome task of seeking consent from every counterparty and employee. The parties involved enter into a company split agreement, which clearly identifies the assets, debts, contracts and employees to be moved. In return for transferring its business, the transferring company receives shares in the new joint venture at the time the split takes effect. All statutory procedures mentioned above must be followed. Key provisions in joint venture agreements involving company splits Joint venture agreements that use a statutory com - pany split will set out key commitments, including: • execution of the company split agreement; • transfer of the identified assets, contracts and employees to the joint venture; • issuance of shares by the joint venture to the con - tributing party upon completion; and • fulfilment of all statutory processes required by law. The agreement will also typically include representa - tions and warranties to confirm that (i) the split was conducted legally and effectively, and (ii) all necessary business components have actually been transferred. Since a company split requires commercial regis - tration, the agreement also obliges the parties to promptly apply for registration post-completion. If cer - tain assets require additional registrations (eg, intel - lectual property), these post-closing actions are also addressed in the agreement.
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