Setting Up A Joint Venture In India

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Setting Up A Joint Venture In India

A joint venture is a tactical partnership where two or more people or companies agree to put in goods, services and/or capital to a uniform commercial project.A joint venture is a new enterprise owned by two or more participants. Though, the joint venture represents a newly created business enterprise, its participants continue to exist as separate firms. A joint venture can be organized as a partnership firm, a corporation or any other form of business organisation which the participating firms choose to select.

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In sectors where 100 percent FDI is not allowed in India, a joint venture is the best medium, offering a low risk option for companies wanting to enter into the vibrant Indian market. For any successful JV into India, compatibility is important for both the parties. To maintain a successful joint venture in India both of the associated parties should have a long term goal and conditions should be written in the clauses in JV.

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.

Types of Joint Ventures

Company

  • Incorporated
  • Limited Liability Partnership (LLP)

    • Unincorporated

  • Partnership
  • Cooperation agreement/strategic alliances

    • The typical arrangement in a JVC is as below

  • Two or more parties subscribe to the shares of the JV Company in agreed proportion, in cash, and start a new business.
  • Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer; shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.
  • Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

    • The Advantages of joint ventures

  • Established distribution/ marketing channels set up of the Indian partner
  • Available financial resource of the Indian partners
  • Established contacts of the Indian partners which help smoothen the process of setting up of operations
  • Established contacts of the Indian partners which help smoothen the process of setting up operations.
  • A JV also offers parties an opportunity to jointly manage the risks associated with new ventures. Through a JV they can limit their individual exposure by sharing the liabilities.
  • JVs offer many flexible business diversification opportunities to the partners. A JV may be set up as a prelude to a full merger or only for part of the business.
  • Certain market sectors remain restricted for foreign investment and a local partner with a certain shareholding in the company is a regulatory necessity for commencing business and making investments.

    • Points must be properly assessed before Sign JV Contract

  • Shareholding pattern
  • Composition of board of directors
  • Dividend policy
  • Employment of funds in cash or kind
  • Restriction/prohibition on assignment
  • Indemnity
  • Management committee
  • Jurisdiction for resolution of dispute
  • Frequency of board meetings and its venue
  • General meeting and its venue
  • Change of control
  • Composition of quorum for important decision at board meeting
  • Transfer of shares
  • Non-compete parameters
  • Confidentiality
  • Break of deadlock
  • Termination criteria and notice

    • Foreign Company Joint Venture with Indian Company

    A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories such as real estate, insurance, agriculture and plantation. Foreign investment into India is governed by the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act, 1999 (FEMA).Foreign investments into India, a two tier approval has been provided.

    Automatic Approval Route

    FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

    Foreign Investment Promotion Board (FIPB) Approval Route

    FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment.

    A joint venture company in India is like any other Indian company for the purposes ofIndian Companies Act, Indian Income Tax Act and other applicable laws, rules andregulations.. Regarding approvals for the participation of aforeign company in India, permissions and approvals will be required from the ReserveBank of India or Foreign Investment Promotion Board (FIPB), as the case may be.

    Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.The proposals to FIPB shall contain the following information:-

  • Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and
  • If so, details thereof and the justification for proposing the new venture or technical collaboration;
  • Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing;
  • Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.

    • For Setting up Joint Venture of foreign company in India. We adopt a transparent method of pricing which is fixed and certain and same to all our customers. We do not have any discount policy. Our expertise in Setting up Joint Venture of foreign company in India is well known in India and outside India. We have helped many originations of all size and sector. We can also help in the following areas:

  • Setting up business in India.
  • Provide Assistance in getting documentation submission part.
  • Incorporation of Joint Venture Company.
  • Provide guidance and assistance in regulatory affairs.
  • Taxation consultancy.
  • Assistance on Compliance Part.
  • Arranging Project Finance if required.
  • Drafting Joint Venture Agreement.
  • Provide assistance on any other matter as required after Setup.

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