As a business grows, relationships with business partners, employees, and other stakeholders become more complex, and legal and contract risk grows along with it. Simple contract handling or verbal agreements that caused no problems in the early days can become the source of unexpected trouble during a growth phase.
- Contracts with business partners still rely on a translated headquarters template
- More transactions are being handled verbally or informally, making risk hard to see
- Employment contracts and work rules have not kept pace with the size of the business
- Headcount has grown without compliance systems or internal rules being put in place
This article explains the legal and contract problems that commonly arise as a Japan entity grows, and how to prevent them.
Why Legal Risk Grows During a Growth Phase
As the number of business partners and types of contracts grows, there is less time for the country manager to personally review every contract the way they once could. Rising headcount also carries the risk that employment contracts, work rules, and labor management fail to keep pace.
A limited understanding of Japan-specific business practices — such as a culture that places weight on verbal agreements, or the particular conventions around outsourcing and distributor agreements — is also a common source of contract problems.
Common Problems and How to Prevent Them
The following problems are especially common during a growth phase, along with ways to prevent them.
| Common Problem | Prevention |
|---|---|
| Gaps in outsourcing or distributor agreements | Review and refine contracts to reflect Japanese business practices |
| Employment contracts and work rules that no longer match reality | Revise employment contracts and work rules to match current headcount and business conditions |
| Risk of information leaks from poorly managed NDAs | Build a contract management structure and process, and track signed agreements centrally |
| Underdeveloped compliance systems | Put in place internal rules, a whistleblower system, and personal data protection measures |
Building a Framework to Prevent Problems
Most legal and contract problems can be prevented by building a framework in advance rather than responding after an issue occurs. Building out contract templates, a review process, and internal rules, strengthened in stages as the business grows, is important.
Foreign companies in particular need to satisfy both headquarters' governance standards and Japanese regulations, which makes maintaining a relationship with a lawyer or specialist who knows Japanese practice well an effective way to manage risk during a growth phase.
Summary
- As the number and variety of contracts grows with the business, legal risk grows proportionally
- Review and refine outsourcing and distributor agreements to reflect Japanese business practices
- Revise employment contracts and work rules as headcount grows
- Build a contract management structure for NDAs and other agreements, and track them centrally
- Build out internal rules and compliance systems in stages as the business grows
Contact
JBN provides one-stop support, from drafting and reviewing contracts through to compliance, internal rules, and corporate governance support.
To discuss building your legal framework, please contact us.