A Joint venture is an arrangement in which 2 or more individuals /companies / partnership firms /corporations/legal entities come together to undertake an economic or research activity by entering into an agreement. The parties agree to create a new entity by contributing capital and share income, expenses, liabilities and control in newly formed entity.
There is no restriction for entering into a Joint Venture in India, except for capacity to contract under the law. Any person competent to contract, a company, partnership firm or a corporation can enter into a Joint Venture 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 as same as domestic companies. A Joint Venture can be formed in any of the business entities available in India. It can be in the form of partnership firm , corporation or any other business entity which the parties may choose.
A Joint Venture can be formed for any lawful business purpose. Joint Ventures are mainly formed for the purpose of technology transfer, research and development, supply of technological know-how etc. Interestingly, the foreign companies mainly form Joint Venture for gaining market access in a particular country.
There is no specific procedure for forming a Joint Venture except for negotiations, due diligence and signing a joint venture agreement, apart from what the parties decide to follow. Joint Ventures are limited to the purpose for which they are formed. They can be in the form of partnership firm or company as decided by the parties. In case of Joint Ventures in form of a company, there has to be provisions for transfer and allotment of shares between the entities entering into the Joint Venture. In case of Joint Ventures with foreigners and foreign companies, necessary approval is required.
Any Joint Venture requires a partner, so there has to be two or more partners for forming a Joint Venture. The objective and purpose of the undertaking are agreed upon and a Memorandum of Understanding or a Letter of Intent is signed by the parties deciding the basis of the future Joint Venture agreement. The Joint Venture Agreement is entered into between the parties on the terms as agreed upon between the parties. It is advised that the Memorandum of Understanding and the Joint Venture Agreement are prepared by lawyers or Chartered Accountants as Joint Venture agreements at times involve complexities. Before signing the Joint Venture agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding of the rights and liabilities of the parties and other issues at a later stage.
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