Things to keep in mind in about joint venture agreements

Based on our experience with negotiations to conclude joint venture agreements to establish new companies (joint ventures, or JVs), we will explain the most important provisions in JV agreements, and provisions that are important but to which surprisingly little attention is paid, as follows.

1.Share (equity) ratio

If Japanese law is the governing law for the establishment of the JV, the general standard for the ratio of shares is a two-thirds majority and one-third. However, these guidelines may vary from country to country, so in the case of an overseas JV, caution is required depending on the law governing the establishment of the company. If Japanese law is the governing law for establishment, 20% (15% in some cases) may be a guideline from the perspective of an equity method affiliated company.

In addition, care is needed since there may be restrictions on the ratio of shares (equity) that can be acquired by a foreign corporation (in this case, it means a foreign corporation if Japanese law is the governing law for establishment, and a Japanese corporation if foreign law is the governing law for establishment) depending on the country or region and field of investment.

It should also be noted that the ratio of shares (equity) may not always be proportional to voting rights depending on the type of company to be established (regardless of whether it is a Japanese corporation or a foreign corporation). In other words, even if such a company holds a majority stake (equity), the number of voting rights held may not be a majority depending on the type of company established.

2.JV Confidential Information

From the viewpoint of management, there are many cases where the parent company is excluded from the restrictions on disclosure of confidential information. The same can be said for JVs. However, there are cases where the confidential information of the JV is received from the parties to the JV (know-how, etc.), and in this case, careful consideration should be given to whether other co-ventures may be excluded from the restrictions on disclosure of confidential information. In particular, careful consideration is required when the confidential information is a trade secret of a co-venture, or when one co-venture competes with another.

In addition, the directors of the JV can access the confidential information thereof, but since the directors are often dispatched from the co-ventures, as a result, the co-ventures can sometimes use the confidential information of the JV. However, if the information is used for the benefit of the co-ventures, breaches of a director’s duty of due care of a prudent manager who was dispatched by a co-venture may become a problem. Therefore, from this perspective as well, careful consideration must be given to the definition of confidential information, exceptions and related obligations of the JV.


Of course, there are many cases where JVs survive for a long period of time, but on the other hand, there are cases where they are dissolved in a relatively short period of time. It can be said that there are many more cases where dissolution of the JV is necessary compared with ordinary companies. This is because JVs are established in response to demand from the co-ventures, but once the demand disappears or the interests of the co-ventures conflict, there is no reason for them to persist. Therefore, it is necessary to provide rules regarding how to handle the dissolution of the JV.

In addition to the reasons for dissolution, provisions should be considered for processing the JV’s assets (including intellectual property rights), licenses, inventory, manufacturing equipment and customers at the time of dissolution. This is because there are many cases where these were originally provided by a co-venture, or a co-venture takes over the business of the JV after its dissolution.