RULES TO FOLLOW TO SET UP A JOINT VENTURE WITH AN INDIAN

COMPANY

TYPES OF JOINT VENTURES Three most common types of joint venture

companies may be described as follows-

Two parties, who/which may be individuals or companies, one of them nonresident or both residents , 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.

Alternately, the above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.

Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

INCORPORATION OF JOINT VENTURE COMPANY

There are no separate laws for

incorporation of joint venture Company in India. It is incorporated or established like a private limited company or a public limited company under the Indian Companies Act, 1956.

However, the following key issued should be addressed before establishment of Joint Venture Company:

FORMALITIES

Constitution of the joint venture Company – Private or Public.

To check sectoral cap for foreign direct investment in the proposed joint venture.

Drafting of Memorandum , Understanding and Incorporating detailed terms & conditions.

Selection of nominees / alternate directors on behalf of nonresident shareholders / directors.

Location of Registered office of the Joint Venture

Proposed name of JV

ARTICLESTo avoid contradictions, the Articles of Association should contain the stipulations mentioned in the joint venture agreement and clearly delineate the rights and obligations of the partners.

NON RESIDENT PARTNERIn case one of the partners of the joint venture company is a non resident, approval of Reserve bank of India {RBI} will be required for acquiring shares of the company and establishing place of business in India Foreign Exchange Regulation Act 1973 {FERA}.

APPROVALS

The Joint Venture agreement should be conditional upon obtaining all necessary approvals/ consents/ licenses /permissions of appropriate agencies of Government of India like RBI/SIA etc within specified period.

If any of the approvals are not received, or

received late, the agreement cannot be enforced and the joint venture cannot proceed on the basis of the Agreement. 

IMPORTANT CLAUSES OF A JOINT VENTURE AGREEMENT.

Selection of a good local partner is the

key to the success of any joint venture. A Joint venture Agreement requires dexterous legal drafting and should incorporate clearly the relevant clauses that specify the mutual understanding arrived at between both parties as to the formation and operations of the Joint venture company.

A brief checklist of important clauses is as follows-

The proportion of shareholding in the joint venture company

Specify nature of shares, indicate their transferability conditions.

Composition of the Board of Directors, Appointment of Chairman ,Quorum of Board meetings ,Casting vote provisions.

General meeting. Appointment of CEO/MD. Appointment of Management Committee. Important decisions with mutual consent of

partners.

Dividend policy. Funding provisons. Access conditions. Change of control/exit clauses. Anti-compete clauses Maintaining Confidentiality Indemnity clauses. Assignment. Break of deadlock. Dispute Resolution. Applicable law. Force Majeure. Termination provisions.