Joint Ventures in Japan

You can register a Japanese JV as a general partnership, JSC, LLC or LLP. Of the four, a JSC is the most popular form. Normally, JSCs are run by BoD members whose shares aren’t freely transferable.

Beneficial Ownership

Registering a JV in the state of Japan requires disclosing information pertaining to affiliate companies & JV contracts. Please note that this information has the potential of affecting the market value of shares owned by investors.

Japan: Creating & Managing a JV

There’s a requirement whereby a parent company’s shares, and more specifically, more than fifty percent of them, be consolidated in the financial statements of a parent company. Information on shares in excess of twenty percent (but not exceeding fifty percent) is to be included in a consolidated balance sheet of a parent company as per the ownership ratio.

Decisions taken at a meeting of shareholders must be endorsed by the majority of those present at it. Changing AoA, conducting an M&A transaction in the state of Japan & reducing a share capital require taking a special decision. If a company whose shares are freely traded on stock exchanges intends to issue limited shares, it will need to amend its AoA. For the amendment to be valid, it must be endorsed by the company’s shareholders, and more specifically, by their majority.

Personnel

Those interested in establishing a JV in the state of Japan should keep in mind that a JV must fulfill all its duties as per labor law. If there’s a transfer of employees, a JV must comply with all the commitmenets it has undertaken as per an employment contract.

IPR

Normally, JV partners have joint ownership of any IP rights that they invented together. Sole ownership of IP rights is only possible when one of them is solely responsible for inventing all IP. Also, JV partners normally prefer to use or invent new IP on the basis of the already invented IP.

Japan: JV Financing

Normally, a JV agreement doesn’t specify a specific financing method; however, it does stipulate that a decision about it is made by both partners, and only if they explicitly agree to it. Pursuant to Japanese legislation, a shareholders meeting is to take a special decision authorizing an issue of new shares. However, when it comes to companies with limited shares, their shareholders don’t normally have pre-emptive rights. Each of them is entitled to subscribe for new shares, and their number is going to be proportionate to the number of stakes which they currently own.

Accounting & Reporting

Those seeking to establish a JV in the state of Japan should keep in mind that its financial results must be entirely consolidated with the financial statements of one of its partners, especially if they own in excess of fifty percent of a JV’s shares. Partial consolidation of a JV’s shares is required if the percentage of shares owned by one of the partners exceeds twenty percent (but no more than fifty percent). 

Requirements & Restrictions

As per the Forex Law, foreign investments must be reported to the relevantly authorised government agencies. Also, prior registration of investments associated with particular sectors & geographic locations is required. Here’s a list of sectors in which investments are partially or fully restricted:

• national security;
• protection of domestic industries;
• public safety & infrastructure.

As far as geographic restrictions are concerned, they apply to investors from countries with which Japan hasn’t entered into an FDI treaty. They are also applicable to certain activities in which foreign governments, organizations, individuals or groups are involved.