Basic Joint Venture

Basic Joint Venture

A joint venture in India is a business partnership between two or more companies or individuals who come together to undertake a specific project or business venture. The parties involved in the joint venture share the profits, losses, and risks of the venture in a pre-agreed upon ratio.

The Joint Venture Agreement, which outlines the terms and conditions of the partnership, is a legally binding document necessary to establish a joint venture in India. The agreement should include details such as the joint venture's name, the venture's scope, the contribution of each party to the venture, the distribution of profits and losses, and the duration of the partnership.

Companies seek joint ventures for four reasons:

• For entering into a new market, especially emerging markets
• Gain efficiencies of scale by combining assets and operations
• Share risk for major investments or projects, or
• Access skills and capacities.

Benefits of a Joint Venture

• Access to Local Market and Resources: A joint venture allows a company to access the local market and resources in India, such as skilled labour, suppliers, distributors, and customers. This can be especially beneficial for companies looking to enter a new market or expand their operations in India
• Shared Risk and Cost: A joint venture allows companies to share the risks and costs of doing business in India, which can benefit companies with limited financial resources or expertise in the local market
• Enhanced Credibility and Reputation: A joint venture can enhance a company's credibility and reputation in the local market, as it demonstrates a commitment to long-term success in India and a willingness to partner with local firms
• Increased Efficiency and Effectiveness: A joint venture can increase the efficiency and effectiveness of a company's operations in India, as it allows for the sharing of knowledge, expertise, and resources.
• Improved Access to Financing: A joint venture can improve a company's access to financing in India, as local partners may have established relationships with banks and other financial institutions.
• Greater Compliance With Local Laws and Regulations: A joint venture can help a company comply with local laws and regulations in India, as local partners may better understand the legal and regulatory environment.

Features of a Joint Venture

• Shared ownership: A joint venture in India involves the collaboration of two or more parties, each of which holds an ownership stake
• Shared risks and rewards: The parties involved in a joint venture in India share the risks and rewards of the venture
• Shared management: The parties involved in a joint venture in India jointly manage the venture and make decisions together
• Shared resources: The parties involved in a joint venture in India may share resources, such as capital, expertise, and intellectual property, to achieve the venture's objectives
• Limited liability: Joint ventures in India are typically structured as limited liability entities, which means that the liability of the parties is limited to their investment in the venture.

Types of Joint Ventures

Based on how it is constituted, a joint venture may be classified into the following types.

• Unincorporated Joint Venture
• Incorporated Joint Venture

• Unincorporated Joint Venture

  An unincorporated joint venture is a contractual joint venture affected by a legally binding agreement and does not involve the incorporation process. It does not create a separate corporate body or render capital assets. So it's very much like a partnership.

• Incorporated Joint Venture

  An incorporated joint venture uses a company established for the joint venture, with the venturers obtaining shares. It can be either a private or a public company with limited liability in which the shareholders participate in a joint venture. Here, the shareholders have no rights to the company’s assets. They can only participate in the profits (which are distributed as dividends), not the losses.

Joint Venture Agreement Process

A joint venture is a business relationship in which two or more parties agree to combine their resources in order to achieve a common goal. A joint venture agreement is a legal document that outlines the joint venture's terms and conditions, including each party's roles and responsibilities, the scope of the venture, and the distribution of profits and losses.

The process of establishing a joint venture typically involves the following steps:

• Identify a Potential Partner: The first step in establishing a joint venture is to identify a potential partner or partners with complementary skills, resources, or market access that can help you achieve your business objectives.
• Negotiate the Terms: Once you have identified a potential partner, the next step is to negotiate the terms of the joint venture. This may include issues such as the scope of the venture, the distribution of profits and losses, and the roles and responsibilities of each party
• Draft the Joint Venture Agreement: After the joint venture terms have been negotiated, the next step is to draft a formal agreement that outlines the terms of the venture in detail. This should include a clear description of the business goals and objectives of the venture, as well as the rights and obligations of each party.
• Review and Finalise the Agreement: Once the joint venture agreement has been drafted, it is essential to review it carefully to ensure that it accurately reflects the terms of the venture and that all parties are in agreement. Any necessary changes should be negotiated and incorporated into the agreement before finalising.
• Implement the Joint Venture: Once the joint venture agreement has been finalised and signed, the next step is implementing the venture. This may involve establishing any necessary infrastructure or systems, hiring staff, and launching the venture.

• It is important to consult with a lawyer or other legal professional when establishing a joint venture, as the agreement can have significant legal and financial implications for the parties involved.

• Clauses in a Joint Venture Agreement

  The following clauses must be examined appropriately when signing a Joint Venture Agreement:

  • Object and scope of the joint venture
  • Share participation by local and foreign investors and agreement to a future issue of capital
  • Management committee
  • Financial arrangements
  • The composition of the board and management agreements
  • Specific obligations
  • Provisions for distribution of profits
  • Transferability of shares in different circumstances
  • Remedying a deadlock
  • Termination
  • Restrictive covenants on the company and the participants
  • Casting vote provisions
  • Appointment of CEO/MD
  • Change of control/exit clauses
  • Anti-compete clause
  • Confidentiality
  • Indemnity clause
  • Assignment
  • Dispute resolution
  • Applicable law
  • Force majeure etc.

Procedure to Prepare a Joint Venture Agreement with Vakilsearch

• Step 1: Our expert lawyers will get in touch with you, and we will get the required details from you
• Step 2: After which, we will work religiously and prepare the first draft, which will be shared with you in four days.
• Step 3: Your application will go through two rounds of iterations without additional cost. You can edit your applications if needed.

Documents Required

• Director Identification Number(DIN) number of the director
• Digital Signature Certificate (DSC) of the director
• Memorandum of Association(MOA)
• Articles of Association(AOA)
• Board resolution on allowing the use of the ‘brand or trade name’ of the corporate promoter, by the proposed company that is no-objection
• The equity share capital of the Company stating the extent and percentage of shareholding
• The Application with the Registrar of Companies (ROC).

• For Directors:

  • Copy of identity proof (passport, driving, license, PAN Card, etc.)
  • Copy of address proof (passport, driving license, electricity bill, ration card, telephone bill, bank statement, etc.)
  • Two passport-size photographs
  • Copy of valid passport (mandatory in case of foreign nationals/NRI’s).

Why Vakilsearch

Vakilsearch has a team of highly qualified legal writers and lawyers with years of experience establishing a joint venture firm and preparing the joint venture agreement process. Vakilsearch’s in-house lawyers and legal experts will contact you during the entire process. Once the requirements have been discussed, we will draft your joint venture agreement in no time. The pricing of Vakilsearch’s services is very less compared to other legal firms in India. If you have any questions regarding the drafting process of the joint venture agreement, our customer support team will be happy to assist you.