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CHANAKYA NATIONAL LAW UNIVERSITY

Joint Ventures with foreign company

Corporate Law – II

Submitted to: Submitted by:Mr. Brijnath Rohit Sinha (Faculty, Corporate Law – II) Roll no-601 8thSemester

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ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project, although prepared by me, is

a culmination of efforts of a lot of people. Firstly, I would like to thank our Professor for Corporate

Law, Mr. Brijnath for his valuable suggestions towards the making of this project.

Further to that, I would also like to express my gratitude towards our seniors who were a lot of help

for the completion of this project. The contributions made by my classmates and friends are,

definitely, worth mentioning.

I would like to express my gratitude towards the library staff for their help also. I would also like to

thank the persons interviewed by me without whose support this project would not have been

completed.

Last, but far from the least, I would express my gratitude towards the Almighty for obvious reasons.

Rohit Sinha

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CCONTENTSONTENTS

ACKNOWLEDGEMENT.............................................................................................................................2

Research Methodology.........................................................................................................................4

1. Introduction......................................................................................................................................5

2. Types of Joint Ventures....................................................................................................................6

2.1 Contractual Joint Venture (CJV)................................................................................................6

2.2 Equity Based Joint Venture (EJV).............................................................................................7

3. Who Can Set Up Equity Based JV In India.....................................................................................7

4.Form of Equity Based JV..................................................................................................................8

5. Comparison - JV Company vs. Contractual JV.............................................................................10

6.Prohibited Sectors for Equity-based JV..........................................................................................11

7.Automatic Approval Route Sectors.................................................................................................12

8.Government Approval Route Sectors..............................................................................................13

9.Approval for Technology Transfer, Brand NameUse, Royalty Payment etc..................................14

10. Documents for Joint Ventures......................................................................................................14

11. Essentials of a Shareholders’ Agreement / JointVenture Agreement..........................................15

12. Articles of Association.................................................................................................................17

13. CONCLUSION............................................................................................................................18

BIBLIOGRPAHY..............................................................................................................................19

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RRESEARCHESEARCH M METHODOLOGYETHODOLOGY

Method of ResearchThe researcher has adopted a purely doctrinal method of research. The researcher has made

extensive use of the available resources at library of the Chanakya National Law University and

also the internet sources.

Aims and Objectives

The aim of the project is to present an overview of various aspects of the joint venture of Indian

company with foreign company and provision for the same under Companies Act, 2013.

Scope and Limitations

Though the current topic is an immense project and pages can be written over the topic but due to

certain restrictions and limitations the researcher has not been able to deal with the topic in great

detail.

Sources of Data:

The following sources of data have been primarily used in the project-

1. Books

2. Journals

3. Cases

Method of Writing:

The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation

The researcher has followed the bluebook method of citation (19 th ed.) throughout the course of this

research paper. The author has followed the foot note system for citation.

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1. I1. INTRODUCTIONNTRODUCTION

India is one of the fastest growing economies in the world. The country’s economicgrowth is

attracting business houses from across the world. Joint Venture is apopular method to enter a

country whose legal and business environment isunknown. However, joint ventures face many

hurdles – statutory as well asrelationship cantered.

As far as statutory hurdles are concerned, even after two and a half decades ofliberalization, India

imposes restrictions on foreign investment in some sectors.Foreign companies also need to be aware

of the corporate structures that they canchoose when working in India. Sometimes a contractual

joint venture is a better option than an equity based joint venture. The choice of model of joint

venture is, ofcourse, determined by the objectives that the partners have and also whether

theyintend their relationship to be long term or short term.

This Guide attempts to throw light on the options available to foreign nationals’ andcompanies

when entering into joint ventures in India. It examines the various optionswith reference to different

needs of foreign nationals and companies. It also gives inbrief the sector-wise restrictions imposed

by Government of India in relation toforeign direct investment (FDI).

As and when the Indian partner is selected and broad contours of the relationshipunderlying the

joint venture have been firmed up, it is necessary to create the legaldocuments that will bind the

parties together. At this stage it is necessary to draft,negotiate and execute a Shareholders’

Agreement or Joint Venture Agreement.Surely, it is not easy to freeze the terms of a relationship to

a well-drafted documentthat will stand the test of time. This Guide gives some key points that are

critical inthis regard.

In India almost all equity based ventures are structured in the form of a company.Articles of

Association is a most important document that controls the managementand operations of the

company. Generally, not sufficient attention is given to draftingof Articles. We give a brief write-up

on the relevance of careful drafting of Articles ina joint venture company.

2. T2. TYPESYPES OFOF J JOINTOINT V VENTURESENTURES

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The two options available for establishing a joint venture in India are:

Contractual joint venture

Equity based joint venture

2.1 CONTRACTUAL JOINT VENTURE (CJV)

In a contractual joint venture, a new jointly-ownedjointly owned entity is not created. There is an

Agreement to work together but there is no agreement to give birth to an entityowned by the parties

who are working together. The two parties do not shareownership of the business entity but each of

the two parties exercises someelements of control in the joint venture.

A typical example of a contractual joint venture is a franchisee relationship. In such arelationship

the key elements are:

a. Two or more parties have a common intention – of running a business venture

b. Each party brings some inputs

c. Both parties exercise some controls on the business venture

d. The relationship is not a transaction to transaction relationship but has acharacter of relatively

longer duration.

Generally speaking, the above four can be called as the distinguishingcharacteristics of a

Contractual Joint Venture as opposed to a ContractualTransaction-based relationship.

Foreign companies often resort to contractual joint ventures when they do not wishto invest in the

equity capital of a business in India even though they wish to exercisecontrols and want to decide

the shape that the venture takes. For example, a foreigncompany may have a Technology

Collaboration agreement with an Indian companywhereby the foreign company controls all key

aspects of running the business. Insuch a case the foreign company may like to retain the option of

taking equity at afuture date in the Indian company run by its technology. This will mean that

though tobegin with the venture is a contractual joint venture, the parties may convert it into

anequity based joint venture at a later date.

2. 2 EQUITY BASED JOINT VENTURE (EJV )

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An equity joint venture agreement is one in which a separate business entity, jointlyowned by two

or more parties, is formed in accordance with the agreement of theparties. The key operative factor

in such case is joint ownership by two or moreparties.

The form of business entity owned may vary – company, partnership firm, trusts,limited liability

partnership firms, venture capital funds etc. From the point of a foreigncompany, the most

preferable form of business entity is company. We shall discussthis aspect in detail in the next

section.

Generally speaking in an equity based joint venture, the profits and losses of thejointly owned entity

are distributed among the parties according to the ratio of thecapital contributions made by them.

However, the division of profits and losses is notthe only characteristic of an equity-based joint

venture. The key characteristics ofequity-based joint ventures are as following:

a. There is an agreement to either create a new entity or for one of the parties tojoin into ownership

of an existing entity

b. Shared Ownership by the parties involved

c. Shared management of the jointly owned entity

d. Shared responsibilities regarding capital investment and other financingarrangements.

e. Shared profits and losses according to the Agreement.

It is not necessary that all the above five characteristics are fulfilled in every equity-based joint

venture. For example, there are often agreements where one of theparties is investing but has no say

in the management of the joint venture (JV)company.

There are also situations where a foreign company may want to exercisemanagement control even

though it is not investing in the JV company. Typically,if a foreign company is providing

technology and other knowledge-based inputs, it maywant to ensure that the JV company is

managed as per its directions. In such casesthe foreign company may retain an option to invest in

the JV company at a futuredate. Such a structure may also be used by a foreign company to create a

footholdfor itself in a sector where Foreign Direct Investment (FDI) is not allowed.

3. W3. WHOHO C CANAN S SETET U UPP E EQUITYQUITY B BASEDASED JV I JV INN I INDIANDIA

Generally speaking, any non-resident entity can set up an equity based joint venturein

India.However, some entities face restrictions under FDI Policy 1 of Government ofIndia. The

restrictions are as follows:

1. Citizen or entity of Pakistan can invest only after approval of Government ofIndia in sectors

other than defense, space, atomic energy and sectors prohibited for foreign investment.

2. Citizen or entity of Bangladesh can invest only after approval of Governmentof India.

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However, there are no barred areas as in the case of entities fromPakistan.

3. NRI residents in Nepal and Bhutan as well as citizens of Nepal and Bhutancan invest on

repatriation basis subject to investment coming in free foreignexchange (USD or EURO)

through normal banking channels.

4. Overseas Corporate Bodies (OCB) was recognized a class of investors beforeSeptember

2003. OCB’s used to mean a company, partnership firm, societyand other corporate body

owned directly or indirectly to the extent of at least sixty percent by non-resident Indian and

included overseas trust in which not less than sixty percent beneficial interest was held by

non-resident Indiandirectly or indirectly but irrevocably. OCB’s are no longer recognized as

aclass of investors in India.

5. A Foreign Institutional Investor (FII) can invest only under the PortfolioInvestment Scheme

which limits the individual holding of an FII to 10% of thecapital of the company and the

aggregate limit for FII investment to 24% ofthe capital of the company. This aggregate limit

of 24% can be increased to the sectoral cap / statutory ceiling, as applicable, by the Indian

Companyconcerned through a resolution by its Board of Directors followed by a

specialresolution to that effect by its General Body. The aggregate FII investment, inthe FDI

and Portfolio Investment Scheme, should be within the above caps.

6. A Foreign Venture Capital Investor (FVCI) duly registered in India maycontribute up to

100% of the capital of an Indian Venture Capital Undertaking(IVCU) and may also set up a

domestic asset management company tomanage the fund. Such investments are subject to

the relevant regulationsand FDI policy including sectoral caps, etc. SEBI registered FVCIs

are alsoallowed to invest under the FDI Scheme, as non-resident entities, in othercompanies,

subject to FDI Policy and other regulations.

4.F4.FORMORM OFOF E EQUITYQUITY B BASEDASED JV JV

Every equity based joint venture gives birth to a new entity. Government of Indiapermits certain

type of entities and frowns upon some others. Different types ofentities and the government’s

attitude to them are summed up below:

Company – A limited liability company is the most preferred structure for jointventure

entities in India. Government also encourages investment being in theform of equity capital

of a company incorporated in India. Companies in Indiaare mainly of two types – private

limited and public limited. For a private limited company minimum prescribed share capital

is Rs. 100,000-. For a publiclimited company minimum prescribed share capital is Rs.

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500,000-. A privatelimited company must have at least two shareholders, while a public

limitedcompany must have seven shareholders. The only exception to this is a one-person

company. The shareholders may be foreign citizens or foreigncompanies. Companies Act

2013 makes it mandatory that at least one directorof every company is resident of India.

Partnership Firm – Such an entity is not permitted for joint ventures in India inmost of the

cases. Exceptions are made in case of Non Resident Indians orPersons of Indian Origin

residing out of India. However, such exceptions aresubject to various conditions. Generally

speaking, a foreign company shouldnot think of using partnership firm as a vehicle for a

joint venture.

Venture Capital Fund – A duly registered Foreign Venture Capital Investor isallowed to

contribute up to 100% in Indian Venture Capital Undertakings/Venture Capital Funds / other

companies.

Trusts – A foreign company is not allowed to use Trust as a form of a jointventure entity in

India.

Limited Liability Partnerships – Limited Liability Partnership Firms or LLP’sare a new

concept in Indian business world. Theoretically, foreign companiesmay use an LLP as a

joint venture entity. However, Government of India doesnot look too kindly upon use of

LLP as a route for foreign investment. Theconditions prescribed are long and make

approvals a difficult process. An LLPshould be used as a vehicle for joint venture by foreign

companies in India onlyif there are some special reasons for doing so.

Other Entities – Foreign companies are not allowed to use any structuresother than those

mentioned above for the purpose of equity based joint ventureentities.

To sum up one can say that the most acceptable and convenient form of equitybased joint venture in

India is a limited liability company.

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5. C5. COMPARISONOMPARISON - JV C - JV COMPANYOMPANY VSVS. C. CONTRACTUALONTRACTUAL JV JV

Joint Venture Company Contractual Joint Venture

Liability Limited

However, liability under torts

may be unlimited as faced by

Union Carbide in case of Bho-

pal Gas Tragedy

Limited by Contract

Liability under torts may be

unlimited

Complexity In

Formation

In India a company formation

may take one to three weeks.

Very low level of statutory

regulation of contractual joint

ventures. Zero lead time to start

activities.

Capital Capital investment made by

both the parties as per the JV

Agreement.

Subject to Sectoral caps pre-

scribed by Government of

India (discussed in next

section)

Depends on terms of contract.

There are no constraints

prescribed by Government of

India.

Management

Controls

As per the terms of the JV

Agreement. Statutory protec-

tion of rights of JV partners.

As per the Contract. Limited

statutory protection of rights.

Ownership Ownership shared by the

parties.

Ownership is not shared.

Government

Approvals

Subject to Foreign Direct

Investment Policy of Govern-

ment of India, approval may

either be automatic through Re-

serve Bank of India or need

formal approval of Government

of India

(discussed in next section).

Normally, no approvals are

required.

Contractual JV’s are not

permitted in the fields of

gambling, betting and lottery.

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Exit Route Three options – either JV part-

ner may buy the other; both

partners may sell their shares to

a third party; and the company

may be wound up. In India,

winding up of a company is a

complex and long process in-

volving approval of a court.

Subject to the terms of the

contract.

6.P6.PROHIBITEDROHIBITED S SECTORSECTORS FORFOR E EQUITYQUITY--BASEDBASED JV JV

Foreign companies are not permitted to establish joint ventures in the following areas:

Lottery Business

Gambling and Betting

Chit Funds

Nidhi Company

Trading in Transferable Development Rights

Real Estate business or construction of farm houses

Manufacture of tobacco products and substitutes

Activities / sectors not open to private sector investment e.g. Atomic Energyand Railway

Transport (other than Mass Rapid Transport Systems)

7.A7.AUTOMATICUTOMATIC A APPROVALPPROVAL R ROUTEOUTE S SECTORSECTORS

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For most sectors, investment by a foreign company is under automatic approvalroute. In such

sectors, the banker of Indian company receiving investment receivesan application addressed to

Reserve Bank of India (RBI). The approval of RBI isdeemed to be granted from the date of receipt

of the application by the banker.

It should be noted that foreign direct investment up to 100% of the equity capital ofIndian company

is permitted in all sectors / activities which are not listed in the FDIPolicy of Government of India.

Such investment is permitted through the automaticroute. However, it is subject to laws /

regulations; security and other conditions asapplicable to such sectors / activities in India.

Sectors in which 100% of Indian company is allowed to be held by foreign companyare as follows:

Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushroomsunder

controlled conditions;

Development and production of Seeds and planting material

Animal Husbandry (including breeding of dogs), Pisci culture, Aquaculture, under

controlled conditions

Services related to agro and allied sectors

Mining and Exploration of metal and non-metal ores including diamond, gold,silver and

precious ores but excluding titanium bearing minerals and its ores

Coal & Lignite mining for captive consumption by power projects, iron & steeland cement

units and other eligible activities

Setting up coal processing plants like washeries subject to the condition that thecompany

shall not do coal mining and shall not sell washed coal or sized coalfrom its coal processing

plants in the open market and shall supply the wasor sized coal to those parties who are

supplying raw coal to coal processingplants for washing or sizing.

Exploration activities of oil and natural gas fields, infrastructure related tomarketing of

petroleum products and natural gas, marketing of natural gas andpetroleum products,

petroleum product pipelines, natural gas/pipelines, LNGRegasification infrastructure,

market study and formulation and Petroleumrefining in the private sector

Airports – Greenfield projects

Helicopter services / seaplane services requiring DGCA approval

Maintenance and Repair organizations; flying training institutes; and technicaltraining

institutions in the area of civil aviation

Courier services for carrying packages, parcels and other items which do notcome within

the ambit of the Indian Post Office Act, 1898 and excluding theactivity relating to the

distribution of letters.

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Townships, housing, built-up infrastructure and construction-developmentprojects (which

would include, but not be restricted to, housing, commercialpremises, hotels, resorts,

hospitals, educational institutions, recreational facilities,city and regional level

infrastructure)

Industrial Parks – New and Existing

Cash & Carry Wholesale Trading / Wholesale Trading (including sourcing fromMSE’s)

E-Commerce Activities (B-2-B only)

Non–banking Finance company operating in some specified areas

Pharmaceuticals – Greenfield

There are conditions prescribed for most of the above areas. It is necessary that oneconsults the FDI

Policy of Government of India for specific conditions applicable tothe above areas.In addition to the

above sectors (where 100% foreign direct investment is permitted)there are other sectors where

lower limits are prescribed even though the approvalprocess is automatic. Examples of such sectors

are as follows:

8.G8.GOVERNMENTOVERNMENT A APPROVALPPROVAL R ROUTEOUTE S SECTORSECTORS

There are some sectors / activities where the approval for investing in an Indiancompany has to be

obtained from Government of India. The government agencyresponsible for giving the permissions

is Foreign Investment Promotion Board (FIPB)1

There are sectors where 100% foreign direct investment is permitted butGovernment approval is

required. Examples of such sectors are as follows:

Tea sector including tea plantations

Mining and mineral separation of titanium bearing minerals & ores, its valueaddition and

integrated activities.

Up-linking a Non-News & Current Affairs TV Channel

Publishing/printing of Scientific and Technical Magazines/specialty journals/periodicals.

Publication of facsimile edition of foreign newspapers

Pharmaceuticals – Existing companies

Apart from the sectors mentioned above in which 100% investment is allowed by aforeign company

with the approval of the Government, there are some sectors in theGovernment entry route with

lower limits.

1 http://www.fipbindia.com/ or http://finmin.nic.in/fipbweb/Fipbwebreports/webpage.asp .

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9.A9.APPROVALPPROVAL FORFOR T TECHNOLOGYECHNOLOGY T TRANSFERRANSFER, B, BRANDRAND N NAMEAMEUUSESE, R, ROYALTYOYALTY PPAYMENTAYMENT ETCETC..

Agreements for Technology Transfer, Use of Brand Name, Royalty Payment etc. areaccorded

approval by automatic route. In other words, such agreements do not needany prior permission from

either the government or the Reserve Bank of India.

Before 2009, Government of India regulations used to limit the royalty that could bepaid to a

foreign collaborator / brand owner. The restrictions were removed videPress Note No. 8 (2009)

dated 16 th December 2009.

From 2009 to 2010, royalty and fees under technology collaboration agreementswere regulated by

Foreign Exchange Management (Current Account Transaction)Rules, 2000. However, the

restrictions were removed by Foreign ExchangeManagement (Current Account Transactions)

(Amendment) Rules, 20102.As on date, there are no limits or restrictions either on royalty or fees

under technology transfer agreements.

10. D10. DOCUMENTSOCUMENTS FORFOR J JOINTOINT V VENTURESENTURES

Finalization of a joint venture goes through many stages. The first may be calledcourtship when the

two partners flirt with each other without any seriousness. Thesecond may be called the engagement

phase when there is a level of commitmentbut still it is not very firm or long-term. The final stage

can be compared to a marriage.

Documentation at each stage is different. Generally speaking, Indian companieswish to have a

Memorandum of Understanding (MOU) to define the relationship atthe courtship stage. The MOU

is a brief document without much legal jargon. TheMOU states the duties of both parties and lays

down a road map for the future.

During the engagement phase, a Contractual Joint Venture may be envisaged. Theparties are putting

in relatively higher amount of resources at this stage. Hence, it iscustomary to have well-drafted

legally binding contracts. The contracts are generallyof a fixed duration or are related to specific

events like getting an order or achievingcertain sales volumes.

At the marriage stage, the parties have developed higher confidence in each other.So, an equity-

based joint venture is considered. The documentation for an equityJoint Venture must take into

account all sorts of possibilities that might arise over afairly long period of time. Hence, the Joint

Venture Agreement or Shareholders’Agreement must be prepared very carefully to avoid any

2 vide Notification No. GSR382(E) dated 05.05.2010 w.e.f. 16.12.2010

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confusion even many years down the line.

Generally speaking, most equity Joint Ventures in India are structured in the form ofprivate or

public limited liability companies. In a company, Articles of Association is avery important

document. Companies Act, 2013 gives the promoters freedom to draftthe articles as per their

requirements. It is hence, advisable to devote time andattention to the Articles and not depend on a

standard off-the-shelf draft, especiallyin case of a joint venture company where one of the partners

is a foreign national /company.

11. E11. ESSENTIALSSSENTIALS OFOF AA S SHAREHOLDERSHAREHOLDERS’ A’ AGREEMENTGREEMENT / J / JOINTOINTVVENTUREENTURE AAGREEMENTGREEMENT

Before one starts drafting a Shareholders’ Agreement (SHA) (often called JointVenture Agreement

in India), one must realize that the SHA is not a document forthe government or the courts. SHA is

a working document and should be draftedwith business essentials in focus. Sadly, lawyers /

attorneys / advocates rarely havean understanding of business. So, the entrepreneur or top

management must getinvolved in preparing the SHA. One surely needs professional help in drafting

anSHA. However, beware of a legal professional who has no experience of businessand is only

adept at steering his clients through courts.

The key questions that an SHA must address are common-sense ones that anyentrepreneur is bound

to ask when he / she joins hands with another entrepreneur.Examples of such questions are as

follows:

Who will bring in what resources – monetary, manpower, technology,management systems?

What business will the new company be engaged in?

How will the Board of Directors be constituted?

How will the Board of Directors decide matters – by majority vote / byconsensus?

Who will be the Chairman of the company?

Who will be the Managing Director of the company? What will be the powers ofthe

Managing Director?

Will decisions related to capital expenditure be taken by the Board of Directorsor by the JV

partners?

Will there be decisions that will be taken only at the level of the promoters(persons who sign

the SHA) and not at the level of the Board of Directors?

Who will control finance? Who will sign the cheques?

Who will be responsible for marketing?

Who will be responsible for technical matters like selection of machinery,choice of

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technology, production planning etc.?

Who will decide about future expansion projects?

Will the promoters communicate only at meeting of Board of Directors or willthere be some

other meetings between promoters only?What happens if one of the promoters is not able or

not willing to fulfill his commitments in the SHA?

What will be the Schedule of activities? What happens if there are slippagesfrom the

Schedule?

How to resolve differences that might arise between the promoters?

What will be the Exit Route for one or both of the promoters?

What happens after the promoters fall out? How to decide the price of equityshares at the

time of separation?

The above examples are indicative and are not exhaustive. Obviously, the questionsand answers

that are critical to a particular business enterprise are unique to that enterprise.

If you are an entrepreneur or a key management person involved in preparing an SHA, please list

the key questions and answers that appear to you most critical. Atthis stage there is absolutely no

need for any legalese or format or structure. Oncethe key critical points have been listed, it is time

to ask a professional to take over.

It is the legal professional’s job to convert your key points into an SHA. However,even though the

professional may be the world’s best, an SHA is too important adocument to be left only to a

professional. Please do read it yourself and check ifeach of the key points has been adequately

addressed.

Often legal professionals have a tendency to draft in a language that only they canunderstand. If you

have been unfortunate to get such a legal professional, please tellhim / her politely that the SHA is a

working document between entrepreneurs /business persons and is not a court document. If the

learned professional obligesyou with a draft that you and your potential partner can understand, you

can goahead. On the other hand if he persists with long sentences that seem to go onendlessly and a

structure that gives you headache, it is time for you to get a different

professional to assist you.

12. A12. ARTICLESRTICLES OFOF A ASSOCIATIONSSOCIATION

Shareholders’ Agreement (SHA) is a working document that defines relationsbetween promoters

who decide to come together and give birth to a new company.Legal status of SHA may vary from

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case to case. There is no law in India thatdetermines the enforceability of SHA’s in specific terms.

A company’s Articles of Association are binding on the shareholders of the company.The

enforceability of Articles of Association is in terms of the provisions ofCompanies Act, 2013. It is

hence advisable to make sure that Articles of Associationof the Joint Venture (JV) company are

properly drafted to reflect the wishes of thepromoters as articulated in the SHA.

Surely, there can be no general rules that apply to all possible situations. Some ofthe points that

deserve attention in a JV Company’s Articles are as follows:

Method of decision in a meeting of Board of Directors – by consensus ormajority, with or

without casting vote.

Method of decision in a General Meeting – by consensus or majority, with orwithout casting

vote

Powers of the Board of Directors with regard to Notice for General Meeting,Special

Resolution, Issue of Shares, Transfer of shares etc.

Articles of association can be used by one or both promoters for “entrenchment”.The possibilities

are indeed endless.

Unfortunately, not many company secretaries who routinely handle incorporationmatters

understand the ways that Articles of Association can be used as anextension of the SHA. It is hence

advisable that Articles of Association are drafted by legal professional who is involved with the

preparation of SHA.

13. CONCLUSION13. CONCLUSION

Joint Venture companies are the most preferred form of corporate entities for Doing Business in

India. There are no separate laws for joint ventures in India. The companies incorporated in India,

even with up to 100% foreign equity, are treated the same as domestic companies. A Joint Venture

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may be any of the business entities available in India.

1. Two parties, (individuals or companies), incorporate a company in India. Business of one party is

transferred to the company and as consideration for such transfer; shares are issued by the company

and subscribed by that party. The other party subscribes for the shares in cash.

 2. The above two parties subscribe to the shares of the joint venture company in agreed proportion,

in cash, and start a new business.

3.Promoter shareholder of an existing Indian company and a third party, who/which may be indi-

vidual/company, one of them non-resident or both residents, collaborate to jointly carry on the busi-

ness of that company and its shares are taken by the said third party through payment in cash.

Some practical aspects of formation of joint venture companies in India and the prerequisites which

the parties should take into account are enumerated herein after.

Foreign companies are also free to open branch offices in India. However, a branch of a foreign

company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of

the parent company is also greater in case of a branch office.

BIBLIOGRPAHYBIBLIOGRPAHY

BOOKS

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Majumdar, A.K. & Kapoor, Dr. G.K. 'Taxman's Company Law', 16th ed., New Delhi: Tax-

man Publications Pvt. Ltd., 2013.

Anantharaman, K.S. 'Lectures on Company Law & Competition Act (including Secretarial

Practice)', Tenth ed., Nagpur, LexisNexis Butterworths Wadhwa; 2005.

Gower and Davies, 'Principles of Modern Company Law', 18th ed. London; Thomson,

Sweet & Maxwell, South Asian Edition, 2008.

Chandrachud, Y.V. & Duggal, S.M “A Ramaiya Guide to Companies Act,” Lexis nexis But-

terworths, Nagpur

Datey, V.S., 2004, 'Taxmann Students' Guide to Corporate Laws and Secretarial Practice',

Taxmann Allied Services Private Limited, Haryana, 7th Edition

Singh, Avtar, 1999, 'Company Law', Eastern Book Company, Lucknow, 12th Edition

Geoffrey Morse, ‘Charlesworth &Morse Company Law, 15th Ed., Sweet and Maxwell,

1996.

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