A joint venture is usually understood as financial and technical collaboration for the cause of fulfillment of some projects with existing companies. Companies lacking in some factors such as assets, technology, knowledge, or reach to the market are commonly involved in joint ventures with other companies because they are not able to achieve their goal on their own. Collaboration enables the first party to have access to the resources of the other party without any expenditure for obtaining it.
Indian joint ventures are generally formed by two or more companies or individuals, one of whom may be non-resident, who collaborate to form an Indian public or private limited company with the mutual contribution in the share capital. Joint ventures exist in the form of partnerships, companies, or joint working agreements.
A Joint Venture Agreement is a lawful document where two or more entities combine to do business o undertake an economic activity together. The parties either agree to form an agreement without incorporation of a new entity but with the common intention of running a business or create a new entity by contributing equity and share the revenues, expenses, and control of the enterprise in the proportion of their capital contribution.
Foreign Direct Investment (FDI) up to 100% or a certain percentage is permitted under automatic route in those sectors which are not defined in the FDI policy of the Government of India. There are also some other sectors in which permission from the concerned Industry Ministry is needed for investment. Before 24th May, 2017 all the approvals were handled by the Foreign Investment Promotion Board (FIPB).
The Basic features for entering into a Joint venture Agreement includes Contribution by partners of property, money, effort, skill, knowledge or other assets to the common undertaking, Right of mutual management or control of the property in enterprise and Right to share in the loss and profit of the property.
In a joint venture by way of contract, the contract is entered into between the parties and sets forth their relationship, and their respective rights and liabilities. A joint venture formed by way of partnership is governed by the Indian Partnership Act, 1932. A partnership does not enjoy an independent existence from its members and may be either in the form of an expressed or implied agreement. It is not compulsory that it be registered, however, registration helps in providing some benefits and exemptions under different statutes and enactments, and makes the partners eligible for instituting lawful proceedings to enforce their rights, as arising from the partnership agreement. Registration also gives them the right to sue any third party, to enforce the contractual rights of the partnership.
The documents required for the fulfillment of a joint venture agreement are as follows:
In order to enter into a Joint Venture with the prospective business partner, a letter of intent as well as a Memorandum of Understanding (MoU), is signed by the parties that simplify the basis of the future Joint Venture agreement. This also involves understanding the culture as well as the legal background of the parties. While signing a Joint Venture agreement the following clauses must be properly examined which are as follows: