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Documenti di Professioni
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UNIVERSITY
Submitted to:
Submitted by:
Mr. Brijnath
Sinha
(Faculty, Corporate Law II)
Roll no-601
Rohit
8thSemester
ACKNOWLEDGEMENT
Any project completed or done in isolation is unthinkable. This project, although prepared by me, is
a culmination of efforts of a lot of people. Firstly, I would like to thank our Professor for Corporate
Law, Mr. Brijnath for his valuable suggestions towards the making of this project.
Further to that, I would also like to express my gratitude towards our seniors who were a lot of help
for the completion of this project. The contributions made by my classmates and friends are,
definitely, worth mentioning.
I would like to express my gratitude towards the library staff for their help also. I would also like to
thank the persons interviewed by me without whose support this project would not have been
completed.
Last, but far from the least, I would express my gratitude towards the Almighty for obvious reasons.
Rohit Sinha
CONTENTS
ACKNOWLEDGEMENT.......................................................................................................................2
Research Methodology.........................................................................................................................4
1. Introduction......................................................................................................................................5
2. Types of Joint Ventures.....................................................................................................................6
2.1 Contractual Joint Venture (CJV)................................................................................................6
2.2 Equity Based Joint Venture (EJV)..............................................................................................7
3. Who Can Set Up Equity Based JV In India.....................................................................................7
4.Form of Equity Based JV..................................................................................................................8
5. Comparison - JV Company vs. Contractual JV..............................................................................10
6.Prohibited Sectors for Equity-based JV..........................................................................................11
7.Automatic Approval Route Sectors.................................................................................................12
8.Government Approval Route Sectors..............................................................................................13
9.Approval for Technology Transfer, Brand NameUse, Royalty Payment etc..................................14
10. Documents for Joint Ventures......................................................................................................14
11. Essentials of a Shareholders Agreement / JointVenture Agreement............................................15
12. Articles of Association..................................................................................................................17
13. CONCLUSION............................................................................................................................18
BIBLIOGRPAHY...............................................................................................................................19
RESEARCH METHODOLOGY
Method of Research
The researcher has adopted a purely doctrinal method of research. The researcher has made
extensive use of the available resources at library of the Chanakya National Law University and
also the internet sources.
The aim of the project is to present an overview of various aspects of the joint venture of Indian
company with foreign company and provision for the same under Companies Act, 2013.
Though the current topic is an immense project and pages can be written over the topic but due to
certain restrictions and limitations the researcher has not been able to deal with the topic in great
detail.
Sources of Data:
The following sources of data have been primarily used in the project-
Books
Journals
Cases
Method of Writing:
The method of writing followed in the course of this research paper is primarily analytical.
Mode of Citation
The researcher has followed the bluebook method of citation (19 th ed.) throughout the course of this
research paper. The author has followed the foot note system for citation.
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1. INTRODUCTION
India is one of the fastest growing economies in the world. The countrys economicgrowth is
attracting business houses from across the world. Joint Venture is apopular method to enter a
country whose legal and business environment isunknown. However, joint ventures face many
hurdles statutory as well asrelationship cantered.
As far as statutory hurdles are concerned, even after two and a half decades ofliberalization, India
imposes restrictions on foreign investment in some sectors.Foreign companies also need to be aware
of the corporate structures that they canchoose when working in India. Sometimes a contractual
joint venture is a better option than an equity based joint venture. The choice of model of joint
venture is, ofcourse, determined by the objectives that the partners have and also whether
theyintend their relationship to be long term or short term.
This Guide attempts to throw light on the options available to foreign nationals andcompanies
when entering into joint ventures in India. It examines the various optionswith reference to different
needs of foreign nationals and companies. It also gives inbrief the sector-wise restrictions imposed
by Government of India in relation toforeign direct investment (FDI).
As and when the Indian partner is selected and broad contours of the relationshipunderlying the
joint venture have been firmed up, it is necessary to create the legaldocuments that will bind the
parties together. At this stage it is necessary to draft,negotiate and execute a Shareholders
Agreement or Joint Venture Agreement.Surely, it is not easy to freeze the terms of a relationship to a
well-drafted documentthat will stand the test of time. This Guide gives some key points that are
critical inthis regard.
In India almost all equity based ventures are structured in the form of a company.Articles of
Association is a most important document that controls the managementand operations of the
company. Generally, not sufficient attention is given to draftingof Articles. We give a brief write-up
on the relevance of careful drafting of Articles ina joint venture company.
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aspects of running the business. Insuch a case the foreign company may like to retain the option of
taking equity at afuture date in the Indian company run by its technology. This will mean that
though tobegin with the venture is a contractual joint venture, the parties may convert it into
anequity based joint venture at a later date.
the JV company at a futuredate. Such a structure may also be used by a foreign company to create a
footholdfor itself in a sector where Foreign Direct Investment (FDI) is not allowed.
Company A limited liability company is the most preferred structure for jointventure
entities in India. Government also encourages investment being in theform of equity capital
of a company incorporated in India. Companies in Indiaare mainly of two types private
limited and public limited. For a private limited company minimum prescribed share capital
is Rs. 100,000-. For a publiclimited company minimum prescribed share capital is Rs.
500,000-. A privatelimited company must have at least two shareholders, while a public
limitedcompany must have seven shareholders. The only exception to this is a one-person
company. The shareholders may be foreign citizens or foreigncompanies. Companies Act
2013 makes it mandatory that at least one directorof every company is resident of India.
Partnership Firm Such an entity is not permitted for joint ventures in India inmost of the
cases. Exceptions are made in case of Non Resident Indians orPersons of Indian Origin
residing out of India. However, such exceptions aresubject to various conditions. Generally
speaking, a foreign company shouldnot think of using partnership firm as a vehicle for a
joint venture.
Venture Capital Fund A duly registered Foreign Venture Capital Investor isallowed to
contribute up to 100% in Indian Venture Capital Undertakings/Venture Capital Funds / other
companies.
Trusts A foreign company is not allowed to use Trust as a form of a jointventure entity in
India.
Limited Liability Partnerships Limited Liability Partnership Firms or LLPsare a new
concept in Indian business world. Theoretically, foreign companiesmay use an LLP as a
joint venture entity. However, Government of India doesnot look too kindly upon use of
LLP as a route for foreign investment. Theconditions prescribed are long and make
approvals a difficult process. An LLPshould be used as a vehicle for joint venture by foreign
companies in India onlyif there are some special reasons for doing so.
Other Entities Foreign companies are not allowed to use any structuresother than those
mentioned above for the purpose of equity based joint ventureentities.
To sum up one can say that the most acceptable and convenient form of equitybased joint venture in
India is a limited liability company.
Liability
unlimited
Formation
Capital
activities.
Depends on terms of contract.
prescribed by Government of
prescribed by Government of
India.
India
(discussed
in
next
Management
section)
As per the terms of the JV
Controls
Agreement. Statutory
protection of rights of JV
partners.
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Ownership
Ownership
shared
by
Government
parties.
Subject to Foreign Direct
Approvals
Investment Policy of
required.
Government of India
(discussed in next section).
Exit Route
contract.
Lottery Business
Gambling and Betting
Chit Funds
Nidhi Company
Trading in Transferable Development Rights
Real Estate business or construction of farm houses
Manufacture of tobacco products and substitutes
Activities / sectors not open to private sector investment e.g. Atomic Energyand Railway
Transport (other than Mass Rapid Transport Systems)
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educational
institutions,
recreational
facilities,city
and
regional
level
infrastructure)
Industrial Parks New and Existing
Cash & Carry Wholesale Trading / Wholesale Trading (including sourcing fromMSEs)
E-Commerce Activities (B-2-B only)
Nonbanking Finance company operating in some specified areas
Pharmaceuticals Greenfield
There are conditions prescribed for most of the above areas. It is necessary that oneconsults the FDI
Policy of Government of India for specific conditions applicable tothe above areas.In addition to the
above sectors (where 100% foreign direct investment is permitted)there are other sectors where
lower limits are prescribed even though the approvalprocess is automatic. Examples of such sectors
are as follows:
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legally binding contracts. The contracts are generallyof a fixed duration or are related to specific
events like getting an order or achievingcertain sales volumes.
At the marriage stage, the parties have developed higher confidence in each other.So, an equitybased joint venture is considered. The documentation for an equityJoint Venture must take into
account all sorts of possibilities that might arise over afairly long period of time. Hence, the Joint
Venture Agreement or ShareholdersAgreement must be prepared very carefully to avoid any
confusion even many years down the line.
Generally speaking, most equity Joint Ventures in India are structured in the form ofprivate or
public limited liability companies. In a company, Articles of Association is avery important
document. Companies Act, 2013 gives the promoters freedom to draftthe articles as per their
requirements. It is hence, advisable to devote time andattention to the Articles and not depend on a
standard off-the-shelf draft, especiallyin case of a joint venture company where one of the partners
is a foreign national /company.
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Managing Director?
Will decisions related to capital expenditure be taken by the Board of Directorsor by the JV
partners?
Will there be decisions that will be taken only at the level of the promoters(persons who sign
the SHA) and not at the level of the Board of Directors?
Who will control finance? Who will sign the cheques?
Who will be responsible for marketing?
Who will be responsible for technical matters like selection of machinery,choice of
technology, production planning etc.?
Who will decide about future expansion projects?
Will the promoters communicate only at meeting of Board of Directors or willthere be some
other meetings between promoters only?What happens if one of the promoters is not able or
not willing to fulfill his commitments in the SHA?
What will be the Schedule of activities? What happens if there are slippagesfrom the
Schedule?
How to resolve differences that might arise between the promoters?
What will be the Exit Route for one or both of the promoters?
What happens after the promoters fall out? How to decide the price of equityshares at the
time of separation?
The above examples are indicative and are not exhaustive. Obviously, the questionsand answers that
are critical to a particular business enterprise are unique to that enterprise.
If you are an entrepreneur or a key management person involved in preparing an SHA, please list
the key questions and answers that appear to you most critical. Atthis stage there is absolutely no
need for any legalese or format or structure. Oncethe key critical points have been listed, it is time
to ask a professional to take over.
It is the legal professionals job to convert your key points into an SHA. However,even though the
professional may be the worlds best, an SHA is too important adocument to be left only to a
professional. Please do read it yourself and check ifeach of the key points has been adequately
addressed.
Often legal professionals have a tendency to draft in a language that only they canunderstand. If you
have been unfortunate to get such a legal professional, please tellhim / her politely that the SHA is a
working document between entrepreneurs /business persons and is not a court document. If the
learned professional obligesyou with a draft that you and your potential partner can understand, you
can goahead. On the other hand if he persists with long sentences that seem to go onendlessly and a
structure that gives you headache, it is time for you to get a different
professional to assist you.
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vote
Powers of the Board of Directors with regard to Notice for General Meeting,Special
Resolution, Issue of Shares, Transfer of shares etc.
Articles of association can be used by one or both promoters for entrenchment.The possibilities
are indeed endless.
Unfortunately, not many company secretaries who routinely handle incorporationmatters understand
the ways that Articles of Association can be used as anextension of the SHA. It is hence advisable
that Articles of Association are drafted by legal professional who is involved with the preparation of
SHA.
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13. CONCLUSION
Joint Venture companies are the most preferred form of corporate entities for Doing Business 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 the same as domestic companies. A Joint Venture
may be any of the business entities available in India.
1. Two parties, (individuals or companies), 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.
2. The above two parties subscribe to the shares of the joint venture company in agreed proportion,
in cash, and start a new business.
3.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.
Some practical aspects of formation of joint venture companies in India and the prerequisites which
the parties should take into account are enumerated herein after.
Foreign companies are also free to open branch offices in India. However, a branch of a foreign
company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of
the parent company is also greater in case of a branch office.
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BIBLIOGRPAHY
BOOKS
Majumdar, A.K. & Kapoor, Dr. G.K. 'Taxman's Company Law', 16th ed., New Delhi:
Taxman Publications Pvt. Ltd., 2013.
Anantharaman, K.S. 'Lectures on Company Law & Competition Act (including Secretarial
Practice)', Tenth ed., Nagpur, LexisNexis Butterworths Wadhwa; 2005.
Gower and Davies, 'Principles of Modern Company Law', 18th ed. London; Thomson,
Sweet & Maxwell, South Asian Edition, 2008.
Chandrachud, Y.V. & Duggal, S.M A Ramaiya Guide to Companies Act, Lexis nexis
Butterworths, Nagpur
Datey, V.S., 2004, 'Taxmann Students' Guide to Corporate Laws and Secretarial Practice',
Taxmann Allied Services Private Limited, Haryana, 7th Edition
Singh, Avtar, 1999, 'Company Law', Eastern Book Company, Lucknow, 12th Edition
Geoffrey Morse, Charlesworth &Morse Company Law, 15th Ed., Sweet and Maxwell,
1996.
WEBSITES
http://www.legalserviceindia.com/
http://www.manupatrafast.com/
http://www.lawteacher.net
http:// www.aishmghrana.me
http:// www.taxguru.in
http://www.forum.charteredclub.com
https://www.scribd.com
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