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Joint Venture Agreements

Joint Ventures in India

Joint Venture is a common form of doing business in India. Most foreign direct investments are made in a Joint Venture business. A Joint Venture as the term suggests, is a business agreement in which two or more partners agree to contribute and co-operate towards investments in running a business with an intention of achieving the commercial objective. Joint Ventures may be equity based or contractual. It could involve entirely new business or expand already existing business

Under the Indian Law a Joint Venture is governed primarily by the Indian Contract Act. However as a Joint Venture involves several aspects other corporate laws are also applicable.

In a typical Joint Venture, a foreign investor joins up with an Indian partner as such the Joint Venture helps the foreign investor to access the Indian partners strengths in terms of established market, local know how, local management and distribution channels. Although most of the sectors of the Indian economy are fully open to the foreign investor there are certain areas where there is cap on the investment. In such a case if the foreign investor wants to enter India it has to source an Indian partner for doing business in India.

The Indian economy has several examples of such joint ventures in which Indian and foreign companies have teamed up together to do Joint Venture business. This can be seen in certain sectors like insurance, telecom and real estate etc.

A Joint Venture can be in the form of a company or a partnership. In a typical Joint Venture the parties, creating the Joint Venture can do business by the following ways.

1. Parties subscribe to shares: in such a case a new company is incorporated and the parties subscribe to the shares of this new company as per the agreement between them and thereafter commence a new business.

2. Transfer of technology by one party and share subscription by the other party: in such a case the parties incorporate a new company, where one of the parties transfers its business or technology to the new company in lieu of the shares issued by the company. The other party subscribes the shares of the company by cash investment.

3. Collaboration with an existing company: in this case a Joint Venture partner can acquire shares of an existing company either by subscribing new shares or acquiring existing shares.

A Joint Venture can also be in the form of partnership under the Partnership Act 1932. Such a Joint Venture would create unlimited liabilities for the partners and there would be no separate legal identity for the partnership. Recently the Limited Liability Partnership Act 2008 (LLP Act) has introduced limited liability partnerships in India. Limited liability partnership is a beneficial way of doing business as unlike partnership it has limited liability for the partners and creates a separate legal identity. The LLP Act permits a partnership firm to convert into limited liability partnership.