There has been no particular trend worth noting in 2025 or expected in 2026 with respect to joint ventures (JVs). Generally speaking, JVs are used in many situations in Japan, when parties wish to combine their resources – such as technology, market access, distribution channels, production capability, human resources and financing resources. In particular, JVs tend to be used where:

• the other party’s technology is necessary for the business due to the development of new products or services;
• heavy capital expenditure is required for the business; or
• a foreign company expands its business into Japan.

The authors have not seen any specific impact of recent geopolitical and economic events – such as inflation, interest rate fluctuations, wars in Ukraine and the Middle East, geopolitical challenges and US foreign policies (including tariffs) – on JV activities in Japan.

No specific industry or sector has been more active than others with respect to JVs in Japan. Emerging technologies and related regulations – particularly concerning artificial intelligence, intellectual property, data sharing, storage and usage, and liability for new technologies – do not affect JV vehicles in Japan.

JVs are not a distinct legal concept under Japanese law, and are generally recognised as a business venture established for a specific purpose by two or more independent parties. Typically, a corporation – especially a stock company (kabusihiki-kaisha) or a limited liability company (godo-kaisha) – is used for JVs in Japan. JVs can also be implemented through contractual arrangements, such as a partnership or a business alliance agreement, in certain situations.

The key advantage of corporate JVs is the limited liability of the JV partners. In corporate JVs, the JV entities are, in principle, managed independently from the JV partners and can own their own assets, rights and liabilities. Taxes are imposed on the JV entities in the case of corporate JVs; whereas in contractual JVs the taxes are imposed on the JV partners.

In Japan, a stock company (kabushiki-kaisha) is most commonly used as the JV vehicle. As discussed in 2.1 Typical JV Structures, a stock company has advantages in terms of limited liability and independence. If a stock company is used, the JV parties can utilise (without setting out detailed rules in the articles of incorporation (AoI) or JV agreements) the default rules under the Companies Act (CA), which many business people are familiar with since a stock company is the most popular form of corporation in Japan.

If a corporation (stock company or limited liability company) is used, all gains and losses are attributed to the JV and the JV is subject to taxation. If a partnership is used, all gains and losses are allocated to its partners and the partners are subject to taxation.

For a stock company (kabushiki-kaisha), at least one half of the shareholders’ contributions must be applied to the stated capital; however, for a limited liability company (godo-kaisha), the amount of members’ contributions to be applied to the stated capital is not subject to the foregoing restriction. Therefore, a limited liability company may save on registration tax, which is determined based on an amount of stated capital.

Japan does not have specific primary regulators for JVs, but there are several regulators in relation to setting up JVs, such as:

• the Bank of Japan (BOJ);
• the Ministry of Finance; and
• the Japan Fair Trade Commission (JFTC).

These are discussed further in later sections.

Under the Act on Prevention of Transfer of Criminal Proceeds (the “Criminal Proceeds Act”), specified business operators such as banks, insurance companies and other financial institutions must:

• conduct customer due diligence;
• keep records of customer information; and
• file suspicious transaction reports with the National Public Safety Commission.

However, JV agreements generally do not contain provisions relating to anti-money laundering (AML) regulations and the Criminal Proceeds Act.

Foreign direct investment (FDI) in Japan is regulated by the Foreign Exchange and Foreign Trade Act (FEFTA), which provides for restrictions on foreign investors.

Under the FEFTA, a foreign investor is required to make, through the BOJ, a prior notification of its FDI or post facto reporting to Japan’s Minister of Finance and to the ministers with jurisdiction over the businesses of the target, if the target is in a sector designated as sensitive to national security, public order, public safety or the smooth management of Japan’s economy (“Sensitive Businesses”). Sensitive Businesses include:

• cybersecurity-related businesses;
• the manufacturing of semiconductors;
• electricity;
• gas;
• telecommunications; and
• IT-related industries.

If the following actions are involved in establishing a JV or transferring shares in a JV, and the JV engages in Sensitive Businesses, a prior notification is generally required (with certain exceptions):

• the acquisition of shares of an unlisted JV (no threshold) other than from another foreign investor;
• the acquisition of 1% or more of the shares or voting rights of a listed JV by a foreign investor and its closely related persons; and
• the acquisition of shares by an entity of countries with which Japan does not have existing treaties regarding FDI, such as Iraq and North Korea.

There is a statutory waiting period of 30 days from the date of acceptance of the notification by the BOJ, which may be extended to up to five months if the authority identifies any national security concern. For cases not requiring scrutiny, the waiting period may be shortened. The typical and recommended approach is to contact the relevant ministries in advance of the formal filing and provide them with the required information – such as the foreign investor’s capital structure, purpose of the investment, and plans for managing the JV – to avoid any recommendation of changes to the details of the investment or the cancellation of the investment.

Violations of the FEFTA and/or an order made by the government may be subject to criminal sanctions, such as imprisonment and/or fines.

Japanese merger control regulations may apply to the establishment of JVs. For example, a JV partner is required to submit a filing to the JFTC 30 days before the acquisition and is prohibited from acquiring shares in the JV company within 30 days after the JFTC’s receipt of the filing if:

• the JV partner intends to acquire shares in the JV company, and the voting rights that will be held by the JV partner and its group companies after the acquisition will newly exceed 20% or 50% of the total voting rights;
• the total sales in Japan of such JV partner and its group companies exceed JPY20 billion; and
• the total sales in Japan of the JV company and its subsidiaries exceed JPY5 billion.

The JFTC will examine the transaction during such 30-day period, and may shorten or extend the period if necessary. Unlike merger control regimes in some jurisdictions, Japan has not adopted the “joint control” concept with respect to the filing requirements.

The Antimonopoly Act of Japan also prohibits the unreasonable restraint of trade. This may give rise to issues if, in the course of managing or operating the JV, JV partners who are competitors exchange their sensitive information that may affect competition.

A listed party may be required to make a public announcement under a stock exchange’s Securities Listing Regulations and other regulations as well as under the Financial Instruments and Exchange Act (FIEA) when the listed party’s decision-making body (typically the board of directors or executive officers) decides to participate in a JV. For further details, see 5.2 Disclosure Obligations.

As explained in 3.5 Listed Companies and Market Disclosure Rules, information relating to the JV may need to be publicly disclosed pursuant to the Securities Listing Regulations if one of the JV partners is a listed company. If a public announcement is required, certain details of the JV company and/or the JV partners – such as its/their name(s) and major shareholders – may need to be publicly disclosed.

In addition, when a JV partner is a foreign investor and the JV company engages in one of the Sensitive Businesses, such foreign JV partner will be required to make a notification to the relevant authorities prior to its investment in the JV company (see 3.3 Sanctions, National Security and Foreign Investment Controls for further details). In the prior notification, the foreign JV partner is required to disclose information about its ultimate owner. However, the prior notification will not be made public.

If the JV company is a listed company, shareholders holding more than 5% of the shares of the listed company must submit a large shareholding report, which will be publicly disclosed, pursuant to the FIEA. In the large shareholding report, the shareholder must disclose information such as:

• its identity;
• the purpose of the shareholding;
• material agreements relating to the shares; and
• regarding shares held by certain affiliated parties and other shareholders with whom the reporting shareholder has an agreement with respect to the acquisition or disposition of the shares or the exercise of voting rights.

In 2020, there was a major amendment to the FEFTA, which expanded the scope of Sensitive Businesses (see 3.3 Sanctions, National Security and Foreign Investment Controls). In addition, over the past several years, the Japanese government has tightened its review of FDI. Against this backdrop, foreign JV partners are recommended to analyse the implications of the FEFTA process at the outset of a potential JV transaction in Japan, especially if the JV partner is from China, Russia or other countries with which Japan has tensions, or if it is funded or otherwise closely related to any foreign government.

Regarding court decisions, there was a lower-court precedent ruling that the specific performance of a voting agreement between shareholders is only available if all shareholders are parties to the voting agreement.

However, in January 2020 the Tokyo High Court ruled that, depending on the intention of the parties to the voting agreement, the specific performance of a voting agreement may be available even if not all shareholders are parties to the voting agreement. At the same time, though, the Tokyo High Court mentioned that courts can revoke a shareholders’ resolution that was passed in breach of a voting agreement only if all shareholders were parties to the voting agreement, to avoid any unexpected effect on the other shareholders that are not parties to the voting agreement.

During negotiations (ie, before executing the definitive agreements), the following steps are usually taken.

• NDA: parties usually enter into a mutual non-disclosure agreement (NDA) before discussing the details of a possible joint venture.
• DD: if a JV is established using an existing entity or if existing businesses or assets of the JV partners will be contributed to the JV entity, the parties usually conduct due diligence (DD) on such entity, businesses or assets.
• MoU: when the parties agree to proceed with their JV discussions, they often execute a memorandum of understanding (MoU) outlining the key terms and conditions of the JV and negotiation details. MoUs are generally not legally binding, but they often include legally binding exclusivity provisions regarding the negotiations.

If a JV partner or the JV entity is a listed company and establishing the JV involves a disclosure matter under the Securities Listing Regulations of the relevant stock exchange (eg, a company split, business transfer, asset transfer or issuance of new shares), and if the transaction is not deemed “insignificant”, the affected party must disclose the required information when it decides to proceed with the JV. Therefore, when the affected party enters into a definitive agreement, it would generally be required to disclose that fact. Also, even the mere execution of an MoU may trigger such disclosure requirements, unless the MoU is just an agreement to proceed with negotiations.

In addition, a company that is required to submit an annual securities report may be required to file an extraordinary report under the FIEA regarding the establishment of a JV.

Also, if the JV entity is a listed company and is a party to a JV agreement with JV investors (ie, its shareholders), certain material agreements must be disclosed in its annual security report or extraordinary report under the FIEA. Such material agreements include:

• an agreement between a listed company and a shareholder on the nomination of candidates for director, restrictions on exercising voting rights and prior consent rights on matters to be resolved at a shareholders’ meeting or by the board of directors; and
• an agreement between a listed company and a shareholder who has filed a large-scale shareholding report regarding restrictions on share transfers, standstill on share accumulation, share subscription rights, and the company’s call options.

JV agreements typically provide for conditions precedent to each party’s obligation to make a capital contribution or a business/assets transfer to the JV entity, such as no breach of representations and warranties and/or covenants. In particular, if the JV is set up by the transfer of the JV partners’ existing businesses, the completion of the carve-out of such businesses – including obtaining third-party consents to contract transfers and taking necessary actions for standalone issues – may be crucial and required as conditions precedent.

In JV agreements, the so-called no-MAC (material adverse change) clause is often provided as a condition precedent, although a force majeure clause is not that often provided.

To set up a JV vehicle, JV partners can use an existing company or establish a new company. When an existing 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 requirements for companies.

As a general rule, there are no requirements for the participation of foreign entities in Japanese JV companies. 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 broadcasting business – under laws regulating those specific 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 implemented through:

• a business transfer or asset transfer through a contractual buy-sell agreement;
• a statutory company split; or
• a contribution in kind.

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 transferring or transferee company; and
• with respect to contributions in kind, an investigation by an inspector appointed by the court regarding 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 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.

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 chosen, 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 matters (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;
• restrictions on the transfer of shares in the JV (rights of first refusal (ROFR), tag-along rights, drag-along rights, put/call options); and
• termination and dissolution.

Board of Directors

A JV formed as a stock company (kabushiki-kaisha) would typically have a board of directors (BoD), in addition to the shareholders’ meeting, as a decision-making body. A BoD is comprised of directors and has the authority to make all decisions regarding the execution of the company’s business other than matters to be resolved at a shareholders’ meeting pursuant to the CA and the AoI. BoD decisions require a majority vote of the directors present at the meeting (or, if a higher vote or quorum is specified in the AoI, such higher number). A representative director or an executive director conducts the company’s business pursuant to the decisions and under the monitoring of the BoD.

Shareholders’ Meeting

If the JV company has a BoD, shareholders’ meetings can only determine matters stipulated in the CA (examples are listed below) and the AoI.

General matters – such as approval of financial statements, distribution of dividends, appointment and removal of directors, and appointment of statutory auditors – are passed by a simple majority vote of shareholders present at the meeting (quorum requires the attendance of shareholders holding more than half of all the voting rights, unless set out differently in the AoI.

Matters that materially affect the status of shareholders or that require careful judgement – such as AoI amendments, corporate reorganisation including merger, business transfer, company split (kaisha bunkatsu), share-to-share transfer (kabushiki kokan), share delivery (kabushiki kofu), share exchange (kabushiki iten), share issuance (if share transfers are subject to company approval under the AoI) and dissolution of the company – are passed by a super-majority vote of shareholders equal to two thirds (or, if a higher shareholding is specified in the AoI, such higher shareholding) of the affirmative votes of shareholders present at the meeting (quorum requires the attendance of shareholders holding more than half of all the voting rights, unless set out differently in the AoI, but no less than one third).

There are some exceptional matters that must be passed by special resolution of shareholders, requiring more than a super-majority of affirmative votes.

Reserved Matters

In order to protect minority shareholders, JV agreements typically provide for reserved matters (which would otherwise be passed without the vote of the minority shareholder) requiring the prior consent of the minority shareholder to pass as a resolution of the BoD or shareholders’ meeting. Such reserved matters may be stated in the AoI, or the JV company may issue class shares with separate voting rights to elect a minimum number of board members or to veto certain material matters. Typical reserved matters include:

• equity financing, including issuance of new shares and stock options;
• corporate reorganisation including merger, business transfer, company split (kaisha bunkatsu), share-to-share transfer (kabushiki kokan), share delivery (kabushiki kofu) and share exchange (kabushiki iten);
• amendments to the AoI or other material internal rules and regulations;
• related-party transactions; and
• liquidation, dissolution or otherwise winding-up of business or operations.

Other less important matters are often contractually stipulated as items for prior consultation with the minority shareholder.

Initial Funding

Initial funding is usually made by equity investment from JV partners. Moreover, assets necessary for the JV’s operation such as IP and facilities are typically transferred to the JV company in exchange for equity issued by the JV company (contribution in kind) or by way of company split (kaisha bunkatsu) pursuant to the provisions of the CA.

Further Funding

A JV agreement usually provides that JV partners have no obligation to fund or provide a guaranty; thus, JVs usually rely on loans from third parties such as banks. However, as it may be difficult to secure external financing depending on the financial conditions of the JV company, a JV agreement would likely stipulate that shareholders discuss and agree to provide a guaranty to support the JV company.

Equity financing is usually stipulated as a reserved matter (see 6.2 Governance and Decision-Making). It is often the case that all the JV partners will be offered the opportunity to subscribe for newly issued shares in proportion to their shareholding in the JV company (a pre-emptive right), rather than minority shareholders having a veto right.

Loans From JV Partners

A loan from JV partners is also an option and is usually a reserved matter. Interest payments to affiliated foreign corporations are subject to thin-capitalisation rules (with a 3:1 debt-equity ratio) and earnings stripping rules (with a 20% threshold of adjusted income) where the excess amount of interest payable would not be tax-deductible.

In order to resolve a deadlock, delegates of the JV partners initially discuss the matter for a certain period of time, and the JV partners are usually obliged to ensure that their delegates discuss in good faith. If not resolved at that stage, the matter is escalated to higher-level executives of the JV partners who will continue discussing for a further period of time.

Occasionally, the JV agreement would provide for:

• a put option to sell a JV partner’s shares to the other JV partners;
• a call option to acquire the shares of the other JV partners; or
• a right to dissolve the JV, where the right is triggered if the deadlock is not resolved amicably.

If assets necessary for the JV’s operation such as IP, factories and facilities are transferred to the JV company in exchange for equity in the JV company (contribution in kind) or through a company split (kaisha bunkatsu) pursuant to the CA, the foregoing arrangements will be provided in the JV agreement. If a JV partner licenses rather than transfers the IP to the JV company, a licence agreement between the JV company and the JV partner will be executed (see 8. IP and ESG for more detail). Also, a JV partner often enters into lease agreements under which offices or factories are leased to the JV company.

If a JV partner seconds its employees to the JV company, an employee secondment agreement between the JV company and the JV partner will be executed. If products or services are sourced from or provided to a JV partner, relevant agreements – such as supply agreements, distribution agreements and outsourcing agreements with respect to business administration and general affairs – will be executed between the JV company and the JV partner.

Most JVs in Japan are structured as corporations – particularly as stock companies (kabusihiki-kaisha). In a stock company, the liability of shareholders is limited to their investment, meaning that they do not share in the company’s losses. The profits of the company are distributed as dividends, generally based on the number of shares held by each shareholder. In order to pay dividends, the company must have capital surplus and obtain a shareholders’ resolution (which may be delegated to the board of directors under certain conditions). However, it is possible to change the distribution ratio by issuing class shares. 

JV agreements often include non-compete clauses, particularly where the JV partners are strategic investors. These clauses restrict the parties from engaging in competing businesses during the JV’s term and sometimes for a period after their exit.

Other rights of the JV parties are discussed in 6.7 Minority Protection and Control Rights.

As a separate entity, JV parties are not liable for the JV’s debts and obligations. However, the JV partners may contractually agree to provide security interests, guarantees or indemnities for the JV’s obligations.

In contrast, in the case of a partnership, parties are typically jointly and severally liable for the JV’s debts and obligations.

Board Representation

Regarding board seats, the minority party often secures the right to appoint one or more directors to the JV’s board, ensuring direct involvement in strategic decisions. If not, they may seek the right to appoint a board observer.

Reserved Matters/Veto Rights

See 6.2 Governance and Decision-Making.

Information and Audit Rights

Regarding access to information, the minority party may have contractual rights to receive regular financial statements, management reports and other key information.

As regards audit rights, the minority party may have contractual rights to conduct its own audits of the JV’s books, records and other documents.

Transfer Restrictions and Anti-Dilution Protections

ROFR and tag-along rights are often negotiated. Pre-emptive rights on share issuances are also negotiated.

Deadlock Resolution Mechanisms

See 6.4 Deadlocks.

In international JVs where the JV company is incorporated in Japan, the most common option for the governing law of the JV agreement is Japanese law. This is because the CA will apply to matters regarding the JV company (such as incorporation, shares, governance, liabilities of directors and dividend distribution), regardless of the governing law of the JV agreement. However, if the JV is between international parties, parties sometimes choose laws with which they are most familiar.

In international JVs, the parties almost always agree on dispute resolution mechanisms, and it is one of the more important issues negotiated on. The parties are also free to select dispute resolutions mechanisms, such as litigation in courts or arbitration, and the jurisdiction/seat of the dispute resolution. If the JV is incorporated in Japan, one common option is litigation in Japanese courts, given the courts’ reliability and familiarity with Japanese law. Another common option is arbitration to ensure confidentiality of the proceedings and enforceability in the jurisdiction in which international parties are domiciled. The seat of the arbitration could be either Japan or a neutral third country (such as Singapore).

Japan is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), and accordingly foreign arbitral awards are generally recognised and enforceable in Japan, unless they fall under specific grounds for refusal (eg, incapacity, invalid arbitration agreement, public policy, etc). The party seeking enforcement must apply to a Japanese court for an enforcement order.

On the other hand, Japan is not a party to any multilateral treaty (such as the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters) regarding the recognition and enforcement of foreign court judgments. Under the Code of Civil Procedure of Japan, a final and binding foreign judgment will be recognised and bind courts in Japan without any process if it meets the following conditions:

• the foreign court had proper jurisdiction;
• the losing party was properly served (or responded without being served);
• the judgment and court procedures do not violate Japanese public policy; and
• there is reciprocity (the foreign country would enforce Japanese judgments under similar circumstances).

However, such foreign judgments that satisfy said conditions will not be automatically enforceable in Japan, and the party seeking enforcement must first file a lawsuit in a Japanese court seeking an enforcement judgment for the foreign judgment.

Typically, the BoD of a corporate JV entity is structured to enable each JV partner to designate directors in proportion to its shareholding ratio in the JV company. The resolution by a shareholders’ meeting is required for the appointment or removal of directors. 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.

The principal duties of directors of Japanese companies 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 appointing 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 functions 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.

The CA does not specifically provide for any statutory reporting requirements of the JV board to the JV members. However, under the CA, the BoD in general must report business reports and financial statements to its shareholders at the annual shareholders’ meeting.

Generally, under the CA, if a company intends to carry 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 company director intends to carry out, on behalf of a JV partner, transactions with the JV company or transactions 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 opportunity 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 Governance and Decision-Making). 

The key IP issues when setting up a corporate JV entity include:

• whether the JV partners’ IP rights should be assigned or licensed to the JV entity (see 8.2 Licensing v Assignment of IP Rights);
• ownership of IP rights developed by the JV entity;
• licensing of IP rights between the JV partners and the JV entity; and
• treatment of IP rights upon termination of the JV.

The key IP issues in contractual JVs include:

• ownership of IP rights jointly developed by the JV partners;
• licensing of IP rights between JV partners; and
• treatment of IP rights upon termination of the JV.

Usually, JV partners would license the IP rights owned by them to the JV entity or other JV partners; and IP rights developed by the JV entity or jointly by the JV partners would be owned by the JV entity or jointly by the JV partners. In the licence agreement, the parties would typically agree on terms relating to:

• royalties;
• term of the licence;
• exclusivity;
• sublicensing;
• permitted use and products;
• geographical area; and
• other pertinent details.

When parties transfer IP to or from foreign entities, certain requirements under the FEFTA may apply. For example, when certain IP (including patents, utility model rights, design rights, trade marks and other technologies) relating to “designated technology” (technology in connection with aircraft, weapons, manufacture of firearms, nuclear or space development) is transferred from a “non-resident” to a “resident” party, the resident party must make, through the BOJ, a prior notification or post facto report to Japan’s Minister of Finance and to other competent ministers, unless certain exemptions apply. Also, export control rules under the FEFTA may apply if certain non-public technology is transferred from a Japanese party to a foreign party.

Generally, an owner of IP rights would choose to license the IP rights to the JV entity if those IP rights are intended to be used in other businesses of the owner. If the IP rights are not intended to be used by the owner, or if the owner wishes to contribute the IP rights into the JV entity instead of making cash contributions, the IP rights may be assigned to the JV entity.

If the IP rights are licensed, the JV entity and the licensing party need to agree on:

• royalties;
• exclusivity;
• scope of the licence;
• term of the licence;
• treatment of third-party infringement; and
• other matters.

If the IP rights are assigned, these matters are usually not relevant.

If the IP rights are assigned to the JV entity, the JV entity can continue using the IP rights even after the termination of the JV agreement. If the IP rights are licensed, usually the JV entity must cease using the IP rights upon the termination of the JV agreement unless otherwise agreed by the parties.

There have not been any significant court decisions or legal developments relating to ESG and climate change that directly or significantly impact on JV practice in Japan.

However, there is a growing trend of ESG factors becoming important management issues, since such factors may represent business opportunities and risks in light of long-term corporate value. In this regard, under amendments to the Japanese Corporate Governance Code in 2021, listed companies are mandated to take appropriate measures to address ESG concerns. Moreover, the FIEA requires listed companies to disclose certain ESG information, including important strategies to address ESG matters, in annual securities reports.

Because of these regulations, listed companies now need to consider ESG strategies. Since the formation of JVs could provide a pathway for listed companies towards acquiring new technologies that could be of help in finding ESG solutions, ESG is now becoming one of the growing drivers in that regard when forming JVs. Since Japanese regulators have taken international discussions into account when implementing Japanese ESG regulations, international policies and scenarios may impact on Japanese ESG regulations in the future.

Typical causes for the termination of a JV arrangement include:

• material breach of the JV agreement by a JV partner;
• insolvency of a JV partner;
• change of control of a JV partner;
• financial difficulties of the JV or the JV’s failure to reach certain milestones; and
• a deadlock that cannot be resolved (see 6.4 Deadlocks).

Ideally, the parties should agree beforehand on the treatment of the JV company’s shares upon termination of a JV, as well as on distribution and transfer of assets between the JV participants. In many cases, when a JV agreement is terminated, the terminating party may exercise either a call option to purchase the other JV partners’ shares in the JV company or a put option to sell the terminating party’s shares in the JV company.

The JV agreement would typically provide for a put/call price that is an increased/reduced percentage of the fair market value (eg, 120% or 80% of the fair market value) if the termination is due to the fault of the other party, and simply the fair market value in other cases. The JV agreement may also give the terminating party the right to call for the dissolution of the JV company.

See 9.2 Asset Redistribution and Transfers for distribution and transfer of assets upon termination of the JV.

If a JV is terminated, the redistribution of assets among the parties will be determined in accordance with the parties agreement in the JV agreement. In the absence of such agreement, the assets will continue to be held by the JV company.

If the JV company is liquidated, a liquidator appointed by a shareholders’ meeting will determine how the JV company’s assets will be distributed to its shareholders if the JV agreement does not provide for the distribution of assets upon liquidation. However, the JV partner that originally contributed those assets to the JV company would usually want a return of the assets.

The JV partners may also wish to co-own the assets originating from the JV company itself, such as IP rights developed by the JV company. Therefore, the JV partners should clearly agree on the treatment and ownership of assets upon termination of a JV in the JV agreement to ensure that the assets will be treated and transferred as they desire.

Under the CA, the AoI may require the approval of the company for share transfers, and practically most JV companies have that requirement in their AoI. In addition, under the CA, a company buy-back of its shares requires that a resolution be passed at a shareholders’ meeting, and the amount of the buy-back must be within the amount of the company surplus.

Parties often provide their exit strategies in the JV agreement. For example, the JV agreement may give a JV member put options should it wish to sell its JV shares to the other JV members. The actual JV exit methods vary depending on the circumstances, but the authors typically see the following exit methods:

• sale of JV shares to other JV participants, the JV company or third parties;
• listing on a stock market; and
• dissolution.