Foreign Companies can set up their operations in India by forming a strategic alliance with one or more Indian partner. There are no separate laws for setting up joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are given the same treatment as the domestic companies.
A typical joint venture is where:
- Two parties incorporate a company in India and subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.
- A new company is formed and business of one party is transferred to the new 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.
- Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.
Advantages of Joint Venture
A Joint venture company is one of the most preferred forms of entry model for foreign companies for doing business in India. A joint venture may entail the following advantages for a foreign investor:
- Accessible financial resource of the Indian partners.
- Established contacts of the Indian partners which help in smoothening the process of setting up of operations.
- Established distribution/ marketing set up of the Indian partner.
Procedure for setting up a Joint Venture
The broad steps involved in setting up a joint venture company in India are outlined as under:
Step 1 - Locate an Indian partner
Step 2 – Form a Joint Venture Agreement setting out the rights and responsibilities of the Parties
Step 3 - In case the Joint Venture Company is a new company, incorporate a new company (public or private) and invest in agreed ratio. However, in case the investment is being made in an existing company by acquisition of shares by the foreign company, complete the share acquisition procedure.
Step 4 – Commence Joint Venture Business