Joint Venture vs. Wholly-Owned Subsidiary in India

Joint Venture vs. Wholly-Owned Subsidiary in India

With globalization all around the world, many foreign companies have been trying to launch their business globally and take worldwide opportunities for further expansion and growth. India is no exception and in recent past, lots of Indian companies have got global footprints and setting up businesses or having tie-ups with global players.

Similarly, global multinational companies want to come to India since there is a huge consumer market with high paying capacity and taste for quality and global brands.

Joint Venture vs Wholly-Owned Subsidiary

The businesses in India now want to integrate their international operations to represent themselves in the international market and to strong their position. Many of such businesses are looking out for other bigger corporate houses for joining the collective forces for better development. With globalization, the ease of doing business in a liberalized manner has also developed.

The need for expansion of business arises for the following reasons-

  1. For seeking new outlets and retail stores for the products for expanding the business at the international level.
  2. Others want to utilize new and better technology that is not available in their home country.
  3. Some take this step to expand capital investment in the business.

Global brands which want to set up their business presence in India normally opt for the following 2 options besides other options:

  1. Joint Venture
  2. Wholly-owned subsidiary company (WOS)or subsidiary company

Both the alternatives for business operation are different from each other in terms of incorporation or registration, criteria, strategic planning and other ways but both are used by foreign companies for expanding their business in India.

Each of these options works differently and imply the amount of control the parent or holding might have over them and also the degree of risks it can bear while setting them up in the host country. To choose between the two i.e. joint-venture or a wholly-owned subsidiary, a foreign company must know the basics about both and the major differences that make them a better option than the other.

Wholly-owned subsidiary (WOS) in India:

A business organization has the option to establish or set-up separate, distinct entities such as wholly-owned subsidiaries at smaller scale. This can be a suitable alternative for the companies that already or want to produce multiple products and provide various services. Such a company mainly focuses on a particular type of product or services in a specific area.

A wholly-owned subsidiary company is a type of company registration in which the parent or holding company owns the shares wholly. Usually, big corporate houses have multiple wholly-owned subsidiaries to carry out their operation in specific areas at different locations. The parent company has full-fledged control over the subsidiaries. However, as per the Indian rules and regulations, a wholly-owned subsidiary company is consider as a separate and distinct entity from the holding, which means it has separate legal identity from its parent.

Joint Venture Registration in India:

A joint venture is a type of organization which is formed by a foreign company which has to be incorporated as per the rules and norms prescribed under the Companies Act, 2013. It is a type of company registration in India that is more suitable to companies that want to invest or venture with the already established businesses in India to get a better hold in the Indian market.

Usually, a joint venture is confused with partnership firm, as its criteria for incorporation is similar to it. In partnership, two or more organization come together to form a single entity for operating the business. But in a joint venture unlike partnership firm, the parties or businesses join together for specific defined purposes. Such ventures can be perpetual or for a limited time period.

Difference between Joint Venture and Wholly-owned subsidiary:

Both JV and WOS have different specific objective and goals behind its incorporation. Some of the differences between wholly-owned subsidiary and joint-venture registration are as under:

  1. Purpose: In case of JV, there is broad defined purpose for entering into JV. Like one party has technology or know how and second party has huge demand or consumer market, so they both formed JV to get synergy benefit where as in case of WOS, one of the reason is to utilize the brand name of parent company and expand its business in other location.
  2. Sharing of profits/income: In case of JV, profits are shared whereas in case of WOS, profits belong to Indian subsidiary which later on may be transferred to parent in terms of dividend etc.
  3. Ownership or control: In case of JV, both companies have control on basis of the percentage of shareholding where as in case of WOS, the parent company has almost completed control over the Indian entity as the majority of shares held by a parent. However, unlike Branch office or Liaison office, both JV and WOS are considered as Indian entity.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.