How It Works
Joint Venture (“JV”) is one of the most interesting kinds of business arrangement, where two or more parties come together and pool their resources in order to accomplish a specific task.
A JV could take various forms such as incorporating a completely new entity or merely entering into a contractual arrangement; it could be for a long term or for a limited duration in order to fulfil a strategic purpose.
JVs are thus highly flexible and floated structures depending upon the considerations and objectives of the participants.
Laws governing Joint Venture Agreements in India
The different laws which govern various aspects of JV Agreement in India are as follows:
- Companies Act, 2013 and various rules framed thereunder
- Partnership Act, 1932
- LLP Act, 2008
- The Indian Contract Act, 1872
- Foreign Exchange Management Act, 1999
- Consolidated FDI Policy, 2020
- RBI Policies
- Competition Act, 2002
- SEBI Guidelines (in case of listed company)
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Contents of Joint Venture Agreement
The following questions must be clearly expressed in the J.V Agreement:-
- What is the object and scope of the JV?
- How would financial arrangements be made?
- Would a partner contribute anything apart from cash?
- How much would be the stake of each partner to the JV?
- What is the composition of the board and management arrangements?
- What are the specific obligations of the parties?
- What are the condition precedent and condition subsequent?
- What is the provision for distribution of profits?
- How would the shares be transferred under different circumstances?
- How would a deadlock be remedied?
- How and circumstances under which the JV would be terminated?
- What is the provision for future issues of capital?
- What are the restrictive covenants on the company and the parties?
- How would the CEO/MD be appointed?
- Equity participation by local and foreign investors;
- Casting vote provisions;
- Change of control/exit clauses;
- Anti-dilution rights;
- Drag Along/ Tag Along rights;
- Anti-compete clauses;
- Confidentiality or NDA clause;
- Indemnity clauses;
- Dispute Resolution clause;
- Applicable law;
- Force Majeure etc.
Frequently Asked Question
What are the different ways in which a Joint Venture can be structured?
A JV can be structed in the following ways:-
2. Partnership Firm
4. Strategic Alliance
What are the benefits of Joint Venture?
A JV is a very lucrative arrangement as it offers an enormous amount of benefits by which the parties to the JV could gain. The JV could be a beneficial arrangement in the following ways:
- Leveraging of strength & resources available with both the parties;
- Creating a platform to attain the business goals which are otherwise difficult or uneconomical to achieve independently;
- Access to newer markets or segments;
- Strengthen position in the existing markets;
- Diversify into new businesses;
- Gives competitive advantages;
- Shares the risk or initial losses associated with a new business;
- Allows the business to expand with a smaller amount of capital.
Does each party to the JV contribute in terms of monetary capital?
No. This is not mandatory.
The parties to the J.V can contribute in the form of monetary capital, Plant & Machinery, technology, customers, know-how and experience, etc.
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