In India, Joint Ventures are one of the preferred forms of corporate entities for doing business by foreign companies. Joint Ventures in India have no separate laws. All the companies that are incorporated in India, with 100% foreign equity are treated the same as all domestic companies present in India.
Key Features Of A Joint Venture Company
A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. A joint venture company in India has certain unique features, which include:
- There are two parties, (individuals or companies) that incorporate a company in India.
- The two parties sign up the shares of the joint venture company in the agreed ratio in cash and start a new business.
- The promoter shareholder of an Indian company and an individual from a third party, who may be resident or non-resident, collaborate jointly to carry on the business of such company.
- The shares are taken by the third party through payment in cash.
Foreign companies are also free to open their branch offices in India. However, a branch office can attract a higher rate of taxes and the liabilities of the parent company are also higher in the case of a branch office.
In India, a physical existence as a business entity is the primary way to break into the country’s developing market. Before entering the Indian market, foreign companies must consider the essential elements like:
- Assessment of the total markets,
- Potential buyers in India,
- Target market,
- Potential competition with other business,
- Pricing & product mix,
- Entry options,
- Regulatory of environment,
- Choosing an impactful business model,
- Implementation of a unique and innovative business strategy.
India is one of the most progressive and dynamic countries across the globe that has greater potential and massive markets for 1.3 billion individuals. Looking at the potentially huge market in India, the trends show that every year the FDI inflow in India is rising due to the numerous and diverse foreign businesses starting their operations and branches in the country.
Process Of Starting A Joint Venture In India
There should be a selection of a good local partner to successfully start any joint venture in India. As a partner is selected, an MOU (Memorandum of Understanding) or a Letter of Intention is duly signed by the parties involved. An MOU highlights the basic features and structure of the future joint venture.
The MOU is signed after consulting legal authorities or experienced advocates who are well versed in multi-jurisdictional laws, international laws and procedures.
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Joint Venture Agreement in India
A Joint Venture Agreement documents the terms and conditions of operating and managing the joint venture, rights and liabilities of the parties, methods for dispute resolution, etc.
A seasoned professional well-versed with the corporate laws and India Entry strategies must be consulted to have an error-free joint venture agreement drafted and to avoid any disputes between the parties in the future. The professional can conduct negotiations required to draw up an agreement as per the requirements of the business.
A Joint Venture Agreement must properly address the following criteria and requirements:
- Holding shares
- Transfer of shares
- Board of Directors
- General meeting
- Management Committee
- Important decisions with the consent of partners
- Dividend policy
- Change of control
- Break of deadlock
- Dispute resolution
- Applicable law
- Force Majeure
The Joint Venture agreement is also required to obtain all essential government approvals and licenses.
Joint Venture Company in India is beneficial if the India Entry Strategies are carefully formulated and well-versed. Negotiation of Joint Venture is crucial for establishing a successful business operation and proper drafting of Joint Venture Agreements.
LetsComply is internationally recognised as a Virtual CFO for businesses and provides end-to-end services to foreign companies to set up their joint ventures in India. Call us at +91-9717070500 or send an email at email@example.com to begin the process of starting your joint venture business in India.