Joint Ventures Registration
Foreign companies desiring to make an entry into India can do so in no. of ways. a) If they want to enter as a 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 a corporate entity, it can be either a wholly-owned subsidiary company (WOS) or by way of Joint Venture with India corporate entity or Limited Liability Partnerships.
Joint venture registration is one of the preferred modes of India’s entry strategy.
Registration as Joint Ventures in India
A joint venture is normally constituted when two or more companies or people are interested in collaborating on a joint project. It can be in the form of Joint venture Companies or Joint Venture Partnerships. Both parties bring in their resources, goods, services, and capital.
Types of joint ventures in India
There are two types of Joint Ventures which may be constituted in India, namely Equity Joint Venture and Contractual Joint Venture.
In the case of Equity Joint Ventures, two or more companies or parties agree to create a new third entity by way of an agreement wherein both parties agree to contribute in share capital and provide money or other resources as their contribution to the company’s assets. This is suitable for long-term joint ventures.
In the case of contractual Joint Ventures, no new legal entities are created, and collaboration is done between two parties based on an agreement or contract. It is preferred when a joint venture needs to be established to fulfill any temporary contract for a limited time.
There may be the following types of joint ventures in India.
In the form of Incorporated entities like Company or Limited Liability Partnership.
In the form of Unincorporated entities like Partnership or contractual agreement.
Joint Venture Registration in the form of Corporate Entity
When the intention is to create joint venture registration in India in the form of a company, it can be done in 2 ways:
- Either a new company is incorporated, and both companies or parties hold shares in a new company or
- In the existing company itself, there is a collaboration with the promoters of the company
Out of the above, new company incorporation is the better option as it provides an opportunity to both the companies to structure the new entity as per their requirement.
Joint Venture Registration in the form of Limited Liability Partnership
When the intention is to create joint venture registration in the form of LLP, it can be done in 2 ways:
- Either a new LLP is incorporated, and both companies or parties hold capital in the new LLP or
- One partner will transfer a stake in the existing LLP to the JV partner.
Joint Venture Registration in the form of Contractual Agreement
When JV is in a contractual agreement, the parties collaborate with independent parties and not shareholders or partners. Here, the contract or agreement is the binding factor and provides for all types of responsibilities, duties, rights, and obligations expected of both the parties and third parties.
The agreement will also define the duration of their legal relationship and will be binding on both parties. Also, in case of any default or breach of terms of the agreement, either party can take the second party to court.
Advantages of joint ventures
Some of the advantages of a Joint Venture structure are as under:
- The foreign partners get access to all the business contacts of Indian Partner, which will help in business operations right from day one.
- The foreign partner can access the Indian partner’s Know-how, experience and skills, and financial resources.
- The foreign partner also get access to established distribution and marketing channels of the Indian partner;
- Risks and liabilities of both the partners are jointly managed, which limits their exposure.
Some Do’s and Don’ts while entering into a Joint Venture.
- Prepare a business plan for JV, including the purpose of JV, SWOT analysis, Amount of investment and when it can be recovered, the reason for doing business with JV and target audience/customer, and the risks and rewards involved.
- Conduct Due Diligence of Partner.
- Analyze cultural differences 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 the form of an agreement.
- Be honest with your partner in all day-to-day dealings.
Don’t rush for joint ventures. First, do your homework correctly, have some clarity on terms and conditions?
- Don’t take another 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 they don’t make false commitments.
- There should be a proper dialogue between both, whether it is positive or negative.
- Don’t presume that other partners will know everything. Document the things and make other partners understand the same.
- Make realistic expectations from JVs neither too high a target nor too low a target. Also, success in JVs is quite a relative term.