Incorporation of Joint Venture Company in India, Procedure for Formation of Joint Venture Company in India. Joint Venture in India by Foreign Companies, Another option available for foreign entity to invest in India is to set up a joint venture company, which means collaboration with an Indian company and contributing in terms of capital, infrastructure, knowledge, technology, etc. It may involve an entirely new business, or an existing business that is expected to significantly benefit from the introduction of the new participant. A joint venture company can be set up as a separate legal entity, distinct from both, the foreign entity and Indian entity.
Incorporation of Joint Venture Company in India
Things to be kept in mind before incorporation:
Limited control:
Unlike a wholly owned subsidiary, a joint venture company offers a limited degree of control to both the entities. This is due to a very obvious reason that both, the Indian as well as the foreign company, have almost equal stake in a joint venture. Therefore, if a foreign entity is willing to reap the advantages like sharing of risks, easy entry into Indian markets, taking advantage of infrastructure set up, etc., rather than exercising full control of the new company, then setting up of a joint venture with an Indian company is best suited.
Cultural and social differences:
Every country has its own way of doing business. In a joint venture, two or more companies from different mindsets, social and cultural backgrounds come together for doing business. Indian company might fear complete acquisition by its foreign collaborator. On the other hand, foreign entity might be apprehensive about Indian entity before investing such a huge amount of capital. Thus, both the collaborators must be sure about their compatibility with each other and willing to sort out their differences for a smooth and profitable business ahead.
Choosing the right partner:
Before entering into a joint venture with any Indian company, the foreign investor must understand what it shall gain from this joint venture. It must suit to the requirements of foreign entity. For example, if a foreign investor is ready to contribute in terms of capital, knowledge and skill and technology but lacks in setting up of infrastructure, manpower, access to Indian markets, then the proposed Indian collaborator must compensate for it
Documentation in a Joint Venture:
Transactions in a joint venture demand efficient, clear and foolproof documentation. Depending upon the nature of the structure, definitive agreements would be drafted and executed, which will set out terms and conditions for both the partners. A few examples are, joint venture agreement, shareholder’s agreement, memorandum and articles of association or any other agreement for collaboration.
Setting up of a joint venture
A joint venture may mean either to set up an entirely new company (public or private) in Indian with an Indian partner or it may involve investing in an already existing company in India.
Relevant Parts of this article
- Setting Up of Business in India by Foreign Companies
- Foreign Institutional Investor
Steps for incorporation
Approving Authority: Registrar of Companies (RoC)
A new joint venture company:
Procedure for incorporation and post incorporation statutory compliances of a new joint venture company will be similar to that of incorporation of a wholly owned subsidiary (public or private) in India, with only difference in its shareholding pattern. In this case, both Indian and foreign partners shall have their agreed percentage of stakes in the joint venture company.
Investment in an existing Indian company:
A foreign investor company may subscribe a percentage of shares of an existing Indian company by way of allotment or transfer of shares already allotted. This will help saving the initial cost of incorporation and other infrastructures. It will also save time of both the partners and the business can be started immediately once the initial formalities are completed.
In this case, if shares are allotted to the foreign investor, then the details of the same shall be reported by the Indian company to the Reserve Bank of India (RBI) in Form FC-GPR, within 30 days of allotment, through its authorised dealer
On the other hand, if the shares are transferred from an existing shareholder (transferor) to the foreign investor, then Form FC-TRS shall be filed with RBI, through its authorised dealer, within 60 days of receipt of full and final amount of consideration. It must be noted here that in this situation, filing of Form FC-TRS is the responsibility of the transferor, if he is resident in India.
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