A joint venture is generally understood as technical and financial
collaboration for the purpose of some projects fulfillment with existing
companies. Companies lacking in some aspects such as technology, knowledge,
assets or reach to the market are generally involved in joint ventures with
other company because they are not able to achieve its goal on its own.
Collaboration allows the first party to have an access to the resources of the
other party without any expenditure for obtaining it.
Indian joint ventures are usually formed by two or more
individuals/companies, one of whom may be non-resident, who collaborate to form
an Indian private/public limited company with mutual contribution in the share
capital
Joint ventures exist in the form of companies, partnerships or joint
working agreements.
Whether Approval is required from
RBI for Investment in India?
FDI up to 100% or certain percentage is allowed under automatic route in
those sectors which are not defined in the FDI policy of Indian Government
There are also some other sectors in which approval from the concerned Industry
Ministry is required for investment. Before 24th May, 2017 all the
approvals were handled by the Foreign Investment Promotion Board (FIPB).
What
is a Joint venture Agreement?
A Joint Venture Agreement
is a legal document where two or more entities combine to do business or
undertake an economic activity together. The parties either agree to form an
agreement without incorporation of new entity but with the common intention of
running a business or create a new entity by contributing equity and share the
revenues, expenses and control of the enterprise in the proportion of their
capital contribution.
Basic features of
entering into Joint venture Agreement
§ Contribution by partners of money, property,
effort, knowledge, skill or other assets to the common undertaking.
§ Right of mutual control or management of the property
in enterprise.
§ Right to share in the profit
and loss of the property
Key questions that parties entering into Joint Venture
Agreement should ask
§ What business will the new company / LLP Firm be
engaged in?
§ How will the Board of
Directors be constituted?
§ How will the Board of
Directors decide matters – by majority vote / by consensus?
§ Who will be the Chairman,
MD of the company and what will be there powers?
§ Finance decisions will be
taken by?
§ What will be the Exit
Route for one or both of the promoters / partners?
§ What happens after the
promoters / partners fall out?
§ How to decide the price of
equity shares / value of enterprise at the time of separation?
Clauses
of Joint Venture
Agreement
There
is no legally prescribed format for a Joint Venture Agreement in India.
However, it is advisable for a joint
venture agreement to have the following clauses:
·
Object and scope of the Joint Venture
·
Equity participation clause of both the parties
if joint venture is equity based
·
by local
and foreign investors and agreement to a future issue of capital
·
Financial arrangements between both the parties
·
The composition of the board and management
agreements
·
Specific obligations
·
Provisions for distribution of profits
·
Transferability of shares in certain
circumstances
·
Termination of the agreement by exit of the
parties
·
Restrictive covenants on the company and the
participants
·
Appointment of CEO/MD
·
Anti-compete clause
·
Confidentiality
·
Indemnity Clause where both parties may
indemnify each other against negligence, and violation of the JV agreement
·
Duration of the Agreement
·
Dispute Resolution
·
Applicable law
·
Force Majeure etc.
The above list
is not exhaustive. Company may vary the agreement.
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