Kaisha, Kabunushi-kan keiyaku no Riron to Jitsumu (Theory and Practice in Contracts between Companies and Shareholders - Joint Ventures, Capital Tie-ups, Start-up Investments)

This book is the result of research on legal issues regarding consensual arrangements in stock companies conducted together by legal scholars specializing in the Companies Act, the Civil Code and the Code of Civil Procedure, and attorneys working in legal matters concerning such arrangements at the law firm Mori Hamada & Matsumoto.
 
Under Japanese law, there are various vehicles (mediums, business entities) used for joint ventures, but a stock company is the most common. This is true for private companies such as start-ups (ventures) and joint ventures as well as for publicly traded companies that engage in large-scale businesses by raising funds from a wide range of general investors.
 
One of the factors that makes stock companies widely preferred is the existence of detailed laws or judicial precedents that interpret their organizational, operational, and management principles (default rules). In a complex joint venture, it is difficult to define all the rights and obligations of related parties such as investors and managers in a contract. By making a stock company a vehicle, the default rules of the Companies Act can be used to reduce the cost of making necessary provisions in contracts one by one.
 
However, the discipline of laws and regulations regarding stock companies does not always correspond well to the needs of specific companies. For example, the one-share-one-vote principle, one of the basic principles of a joint-stock company, is a mechanism for allocating control rights, especially voting rights, to company management in proportion to the shareholder and shareholding ratio. However, in a joint venture, it may be rational to further strengthen the control rights of shareholders with a small investment ratio to incentivize those shareholders to make contributions aside from investment, such as procurement/sales and R&D.
 
Therefore, it may be rational for parties in the joint venture to revise the rules of the Companies Act by making consensual arrangements regarding governance of the company, handling of the shares, and so on, in accordance with their own needs, all the while enjoying the benefits of reducing the cost of concluding contracts and improving predictability by using the default rules of the Companies Act regarding stock companies. Such consensual agreements may be stipulated in corporate articles of incorporation, but due to reasons such as violation of mandatory regulations in the Companies Act, some of those agreements can be made only through contracts between shareholders or between companies and shareholders instead. There are also cases where all or only some shareholders consent to these arrangements. This book examines in detail the validity and legal effects of agreements regarding consensual arrangements in stock companies and legal issues regarding the enforcement of such agreements in court.
 
As many of the arrangements examined in this book are made in unlisted companies such as joint ventures and start-up companies, it is not always easy for researchers to know the actual situation. Therefore, a study group consisting of lawyers and researchers was formed prior to the writing of this book. In the study group, the lawyers first extracted three types of arrangements (joint ventures, capital and business alliances, and start-up investments) as typical situations in which arrangements are used and explained the details of arrangements normally used in each case. They also pointed out legal issues regarding their efficacy and effect (corresponding to Practice in Part 1 of the book). Next, the researchers examined the interpretation theory of current laws and, depending on the issue, the legislative theory regarding those legal questions (corresponding to Theory in Part 2 of the book). Then, members held frank discussions in the study group.
 
We believe that the analysis in this book, based on such joint research, is persuasive as it takes the actual conditions of various arrangements into consideration.
 

(Written by TANAKA Wataru, Professor, Institute of Social Science / 2021)