Setting Up Joint Venture In India
The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.
Types of joint ventures.
Three most common types of joint venture companies may be described as follows:
- Two parties, who/which may be individuals or companies, one of them non resident or both residents, 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
- Alternately, the above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business
- 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.
Benefits of Joint Venture:
- Sharing of resources
- Leveraging of underutilized resources
- High profits
- Back end income
- Low or no risk opportunities
- Massive Leverage
Risks of Joint Venture. Problems are likely to arise if:
- The objectives of the venture are not 100 per cent clear and communicated to everyone involved
- The partners have different objectives for the joint venture
- There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners
- Different cultures and management styles result in poor integration and co-operation
- The partners don't provide sufficient leadership and support in the early stages
How to Enter into a Joint Venture Agreement?
- Selection of a good local partner is the key to the success of any joint venture. Once a partner is selected generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement.
- A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures.
- Before signing the joint venture agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.
Before signing a Joint Venture Agreement the following must be properly addressed:
- Dispute resolution agreements
- Applicable Law
- Force Majeure
- Holding shares
- Transfer of shares
- Board of Directors
- General meeting
- CEO/MD
- Management Committee
- Important decisions with consent of partners
- Dividend policy
- Funding
- Access
- Change of control
- Non-Compete
- Confidentiality
- Indemnity
- Assignment
- Break of deadlock
- Termination
