What Should I Know About Joint Ventures in the U.S.?(米国におけるジョイント・ベンチャーについて知っておくべきこと)



Hi. This is John Sasaki again.

Ichigo turned 14 this month!  She’s slowing down, but she still loves to eat her birthday cake.

You may recall that my first blog article highlighted 4 basic ways to enter the U.S. market – (1) third party contract; (2) subsidiary; (3) joint venture; and (4) acquisition.

In previous articles, I have discussed legal issues associated with third party contracts and subsidiaries.  This time let me discuss joint ventures.

Here are 5 things to remember when considering a joint venture in the U.S.

1. Choice of Entity

You have 4 basic entity choices for your U.S. joint venture: (1) no entity; (2) corporation; (3) partnership; and (4) limited liability company (LLC).

I will analyze these 4 options in more detail in a future article, but the choice ultimately will be determined by your business objectives for the joint venture, tax planning and legal liability concerns.

In short, for a Japanese company, operating a joint venture in the U.S. through a partnership or LLC is generally a bad idea from a U.S. tax standpoint (unless you are already conducting business in the U.S.).  From a U.S. liability standpoint, no entity or a general partnership would also be a bad idea for a Japanese company.

So, for the rest of this article at least, I will assume that your joint venture will be in the form of a corporation.  In that case, the joint venture partners will enter into a contract, typically called a joint venture agreement, which will govern the establishment and management of the corporation.

You can refer to my previous articles on establishing corporations and negotiating contracts, which apply also to joint ventures (which have both corporate and contract aspects), but the key point to remember is that both corporations and contracts are governed by state law.  So the requirements may differ depending on the state where your joint venture corporation is located.

2. Contracts Binding Directors

A common provision in a typical joint venture agreement requires the directors of the corporation, who are elected by the joint venture partners, to behave in a certain way.  For example, the provision might state that the directors appointed by one stockholder will not vote in favor of a matter if the directors appointed by the other stockholder vote against the matter.

One problem with this kind of provision is that the joint venture agreement is generally an agreement between the joint venture partners (who are the stockholders of the joint venture corporation), and not the individuals who are to be appointed as directors of the corporation.  So, strictly speaking, the contract is not binding on the directors.

And even if you bind the stockholders (who are parties to the contract) to cause their appointed directors to comply with the joint venture agreement, directors are bound by fiduciary duties to the corporation (and not specific stockholders) as a matter of corporate law.  What does this mean?  Well, if the directors do not comply with the joint venture agreement because they do not believe the proposed action is in the best interest of the corporation, it is questionable whether a court would require them to do so, even if it results in a breach of the contract by the stockholders that appointed them.

Conversely, what would happen if the directors appointed by one stockholder comply with the joint venture agreement, but their compliance with the agreement results in a breach of their fiduciary duties to the corporation?  In that case, the directors themselves could become subject to (derivative) claims by the other stockholders for breach of their fiduciary duties to the corporation.

So be careful of provisions that purport to bind the directors of the joint venture company.  They may not be enforceable.  There are other ways to enforce these kinds of provisions, but that is a discussion for another day.

3. Stockholder Fiduciary Duties

In Japan, certain matters require a two-thirds shareholder vote for approval, so two-thirds is considered to be the threshold for control in Japan.  And a two-thirds shareholder generally has complete control, and can vote its shares in any way to exercise its control.

In the U.S., this threshold is generally a majority rather than two-thirds (although this can vary state-to-state).

So, if you are the majority stockholder in a joint venture company, does this mean that you can vote your shares in any way to exercise your control?  Generally, the answer may be yes, but you should be aware that certain states impose fiduciary duties on majority stockholders.

This means that you need to be careful when a proposed course of action is in your best interest, but not necessarily in the best interest of the joint venture corporation.  You could become subject to a (derivative) claim by your joint venture partner for breach of your fiduciary duty as a controlling stockholder.

4. Piercing the Corporate Veil

A lot of times the joint venture partners operate the joint venture as a partnership, even when there is a corporate entity.  For example, instead of appointing directors and operating the corporation through the directors, the stockholders will directly make management decisions and other operational decisions.

The risk with this approach is that, if the stockholders of a corporation do not recognize the legal formalities of the corporation (such as corporate governance), then the law will not recognize the corporation either.  In other words, the law will treat the joint venture partners as operating the joint venture without a corporate entity.  This means that the joint venture partners will not be protected as limited liability stockholders, but will be treated as equal partners, with full, unlimited liability for all of the debts and obligations of the joint venture.

This could also have U.S. tax consequences if you are a Japanese company.  At a minimum, you would probably be required to file a U.S. tax return.  At worst, you would be subject to U.S. taxes on a portion of the income generated by the joint venture.  Make sure to consult with your U.S. tax advisor on these tax-related issues.

So, if you use a corporation as the vehicle for your joint venture, make sure that you operate it as a real corporation.  This means the corporation should have a board of directors and officers, which manage the day-to-day operations of the corporation.  And the role of the stockholders should be limited to electing the board of directors and considering matters that should be approved by the stockholders of a U.S. corporation.

5. Irrevocable Proxies

In my article about contracts (include link), I discussed the distinction between legal and equitable remedies under U.S. law.  You may recall that, in general, breach of contract claims result in awards of monetary compensation, rather than specific performance of the contract.

Contrast this to Japan, where the non-breaching party can choose an equitable remedy without having to prove that the legal remedy is inadequate.  In the case of the shareholder voting provisions in a joint venture agreement, the non-breaching party would choose to specifically enforce the contract.

So, does this mean that voting agreements cannot be specifically enforced in the U.S.?  No, because in the U.S. we have the concept of an irrevocable proxy.  In an irrevocable proxy, one stockholder grants to another stockholder (or another party) the right to vote the proxy grantor’s shares in accordance with the voting agreement, if the proxy grantor does not comply with the voting agreement.  And, as the name suggests, the proxy cannot be revoked by the granting stockholder.

Contrast this to Japan, where all proxies are revocable at the option of the granting shareholder.

So, make sure that the joint venture agreement includes an irrevocable proxy provision, especially if you are the minority stockholder.

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As mentioned above, each state has its own requirements, so make sure to check the actual requirements once you determine the applicable state law.  The points above are based on general corporate law principles in the United States, but different states may have different laws regarding these matters.

If you have any questions, please feel free to contact me at jsasaki@jsvlaw.com.


イチゴが今月14歳になりました! 動きが鈍くなってきましたが、バースデーケーキを食べるのはまだ大好きです。











2. 取締役を拘束する契約



また、株主(契約の当事者になります。)が指名した取締役をジョイント・ベンチャー契約に従わせるように、株主に対して義務づけたとしても、取締役は会社法に基づいて会社(特定の株主ではなく)に対する忠実義務(fiduciary duty)を負います。これは何を意味するでしょうか。取締役が、会社にとって最善でないという判断に基づいてジョイント・ベンチャー契約に従った行為をとらなかった場合、たとえそれがジョイント・ベンチャー契約の違反をもたらすとしても、裁判所がその行為を強制するかどうかは分からないということになります。

逆に、ある株主から指名された取締役がジョイント・ベンチャー契約に従い、それが会社に対するfiduciary dutyの違反となる場合はどうなるのでしょうか。この場合、取締役自身が会社に対するfiduciary dutyの違反について他の株主から責任を追及される可能性があります。


3.  株主のFiduciary Duty



そうすると、ジョイント・ベンチャー企業の過半数株主であることは、支配力を行使するためにいかようにも議決権を行使できることを意味するのでしょうか。一般的な回答はイエスです。しかし、一定の州では支配株主にfiduciary dutyが課されていることに注意が必要です。

つまり、予定している行為が自己にとって最良であるがジョイント・ベンチャー企業にとって必ずしも最良ではない場合には、注意が必要です。ジョイント・ベンチャーのパートナー(相手方)から、支配株主としてのfiduciary dutyの違反として責任を問われる可能性があります。

4. 法人格の否定





5. 撤回不能の委任状






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ご質問があれば、お気軽に jsasaki@jsvlaw.com までご連絡下さい。

【参考和文作成:弁護士 林 賢治】