Establishing a Joint Venture in India

What is the best way to structure a joint venture (JV) in India?

Generally, the JV is set up by forming a separate limited company for the Joint Venture so that each party will have the limited liability i.e. up to amount of share capital invested by them. However, the tax position must be assessed as transferring significant assets into the Joint Venture can have unwanted tax consequences.

Sometimes a partnership or a limited liability partnership is used instead of a limited company. Further, in case the management involvement is not required in the Joint Venture, it may be best to use contractual arrangements rather than to create a separate Joint Venture entity.

What are the types of joint ventures in India?

First is the Equity joint venture in which an independent legal entity is created in accordance with the agreement of two or more parties.

This structure is ideal for long-term, broad-based joint ventures, and include joint venture companies and joint venture limited liability partnerships (LLPs).

Second is Contractual joint venture which might be used where the organization of a detached legal entity is not needed or the creation of such a separate legal entity is not feasible.

This type of agreement is preferred in situations that involve a temporary task or a limited activity, or the JV needs to be established for a limited term.

What legal documents are required to set up a joint venture in India?

For forming a new Joint Venture company, a Joint Venture Agreement and the new company’s articles of association (AoA) are the crucial documents.

Following are the points that need to be covered in these documents:

• The financing arrangements for the Joint Venture
• Non-Compete clause
• Arrangements for licensing or transferring intellectual property in inventions, brands, designs or copyright works such as plans or manuals to the Joint Venture
• Agreements on any services or supplies provided to the Joint Venture
• Confidentiality Clause
• Dispute Resolution Mechanism
• Exit Option

What are the major advantages for choosing a joint venture structure in India?

A Joint venture company is one of the most preferred form for foreign investors who are planning to do business in India.

• Established contacts of the Indian partners streamlines the process of setting up of operations
• Access to financial resource of the Indian partners
• Established distribution and marketing set up of the Indian partner
• In sectors where 100% FDI is not allowed in India, JV offers a low risk option for companies wanting to enter into the vibrant Indian market