Joint Ventures Registration
Foreign companies desiring to make an entry into India can do so in no. of ways. a) If they want to come as non-corporate entity, they have an option of either register as Branch Office or Liaison Office or Project office. b) If they want to enter as corporate entity, it can be either wholly owned subsidiary company (WOS) or by way of Joint Venture with India corporate entity.
Registration as Joint Ventures in India
In order to get registered as joint venture Company, Foreign Company will have to become shareholder in new Indian company and then such joint venture company will be considered as Indian domestic company. There are no separate law for registering as joint venture in India although approval from RBI or government has to be taken.
How it works
For example: Two companies, 1 Indian and 1 Foreign opens a new Indian company. Business of first Indian company is transferred to new company in consideration of shares issued by new company. Foreign company subscribes for balance shares of new Indian company in cash. Out of Joint Venture and BO or LO which is better From tax perspective, JV is better than Branch Office or L0 as it has lower tax rate.
Some Do’s and Don’ts while entering into a Joint Venture
- Prepare a business plan for JV including what is purpose of JV, SWOT analysis, Amount of investment and when it can be recovered, reason for doing business with JV and target audience/customer, what are the risks and rewards involved.
- Conduct Due Diligence of Partner.
- Analyze cultural difference between both parties
- Always have open communication and detailed communication with all the aspects whether big or small.
- There should be proper mechanisms for dispute resolution
- Think about Plan B in case JV does not work out
- Plan the mode of exit.
- Everything should be in writing in form of agreement.
- Be honest with your partner in all day to day dealings.
- Don’t rush for joint ventures. First do your homework properly, have some clarity on terms and conditions?
- Don’t take other partner for granted. There should be mutual trust, respect and transparency in all day to day dealings
- It’s different dealing with foreign partners than dealing with Indian partners. They value commitment, honesty and sincerity, therefore don’t make false commitments.
- There should be proper dialogue between both whether it is positive or negative.
- Don’t presume that other partner will have knowledge about everything. Document the things and make other partner understand the same.
- Make realistic expectations from JVs neither too high a target nor too low a target. Also, success in JVs are quite relative term.