Setting up a Joint Venture in India
Setting up Joint Venture in India. India’s economy is the fastest growing economy at present. In order to step-in in any country for the first time, Joint Venture is the most preferable form of setting up a corporate entity. Also it is always advisable to form a Joint Venture in case the legal and business environment is not known.
What is Joint Venture: A Joint Venture can be defined as an agreement between two or more parties do enter into a contractual or a business relationship in order to execute a particular business model.
Joint Ventures are of two types:
1. Contractual Joint Venture: Wherein two or parties (Individual/Company) enter into a contract/agreement to work together but no separate entity is created to execute the business contract.
– Two or more parties enter into a contract with a common intention of executing a project.
– Each party brings its share and roles and responsibilities are decided according to each party’s expertise in the field.
2. Equity Based Joint Venture: Wherein a separate legal entity is created owned by two or more different parties who came together with a common intention and decide to participate in the equity of the newly incorporated entity. The new entity can be in any form, Partnership firm, LLP, Company etc.
Generally speaking in an equity based joint venture, the profits and losses of the jointly owned entity are distributed among the parties according to the ratio of the capital contributions made by them.
The key characteristics of equity-based joint ventures are as following:
– There is an agreement to either create a new entity or for one of the parties to join into ownership of an existing entity
– Shared Ownership by the parties involved.
– Shared management of the jointly owned entity.
– Shared responsibilities regarding capital investment and other financing arrangements.
– Shared profits and losses according to the Agreement.
Benefits of a Joint Venture
Joint ventures perform a useful role in assisting companies in the process of restructuring. Joint Venture have the following benefits:
– It can enable a firm to achieve market penetration into new areas overtime.
– Enter and develop new product markets, expand into new geographic areas and participate in new technology driven value activities.
– They can also be used by smaller firms protectively as an element of long-range strategic planning.
Joint Ventures by Foreign Companies
A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories. Foreign investment into India is governed by the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act, 1999 (FEMA). The Government has set up an Indian Investment Centre in the Ministry of Finance as a single window agency for authentic information or any assistance that may be required for investments, technical collaborations and joint ventures. It advises foreign investors on setting up industrial projects in India by providing information regarding investment environment and opportunities, the Government industrial and foreign investment policies, taxation laws and facilities and incentives and also assists them in identifying collaborators in India.
For such foreign investments into India, a two tier approval mechanism has been provided:-
Automatic Approval Route:- FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.
Foreign Investment Promotion Board (FIPB) Approval Route:- FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment.
Requirements for Private Limited Company
Cost of Service
Everything below is included:
- Free DSC for 1 Director
- DIN for 2 Directors
- Name Reservation
- MOA, AOA & All Incorporation Documents
- Certificate of Incorporation
- Company PAN & TAN [After Incorporation]