A Guide to Establish a Joint Venture in India

Due to adroit human resources, ideal geographic location, and lucrative commercial incentives; today India is now one of the best investment destinations in the world. Since economic liberalization, India emerged as an economic superpower resulting the country having a lot to offer from the perspective of consumers as well as producers to foreign investors or businesses. To establish the business in India, foreign companies find Joint Venture (JV) the most suitable business model that enables companies to reach the local market and target local audiences quickly.

A joint Venture is an agreement in which two or more companies work collaboratively to achieve a commercial goal. A joint Venture may be acted upon either on an entirely new or an existing business, which is beneficial for companies who are included in Joint Venture. In this business model, companies share their resources (brand, marketing, technology, customer base, etc.)in a harmonizing fashion. A Joint Venture alliance negates various deficiencies and bottlenecks such as product quality, technology, infrastructure, management processes, and more with a foreign strategically-fit counterpart.

Establishment of Joint Venture:

There are various issues such as legal and business come into existence in the establishment of Joint Venture. Following things need to consider before entering in Joint Venture.

• The objective and duration of Joint Venture.
• The counterpart and its national culture.
• Roles and responsibilities of parties.
• Applicable laws on the joint venture.
• Advisor selection criteria and process
• The agreement: (Board of directors & management committee)
• Clear performance indicators matrix
• Record keeping methodology and practices
• Indemnity and Contingencies
• Dispute Resolution
• Exit point indicators and Exit plan

Establishment of Joint Venture in India:

There are not separate lawsor principles to establish, conduct or terminate JVs in India. But the functioning of such companies works in India according to the Memorandum of Association (MoA) and Articles of Association (AoA) of the Companies Act, 2013. According to this provision; the management, operation, control, and safeguard of Joint Venture companies should comply with terms and conditions as mentioned in the Memorandum of Understanding (MoU). In India, according to the Joint Venture agreement, Joint Venture Companies don't need to comply with terms, which are included in Articles of Association (AoA). 

To deal with any possible conflicts in the future, the parties in Joint Venture include a provision in the agreement asserting that the parties are free to amend the MoA and AoA accordingly if the AoA is uneven with the provisions mentioned in the Joint Venture agreement. A joint Venture requires government approval, if it is foreign, NRI or PIO partner is involved. There is the requirement of RBI approval if a joint venture comes under the automatic route. The government of India has outlined 30 high-priority areas where investment proposals of up to 74% foreign equity through automatic root will be granted within two weeks. For above 74% of foreign equity and areas other than those mentioned above are open for investment, but there is the requirement of government approval.

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