“What is Joint Venture?”, Types of Joint Venture and Advantages of Joint Venture in India

Introduction

One of the economies with the quickest growth rates in India, which is seen as a bright spot on the global economic map. As a result, it is only natural that India’s economic prosperity draws corporate and business entities from around the world. There are a variety of avenues a foreign business can take to establish itself in the Indian market. Today in this article we will focus on “What is Joint Venture?”, Types of Joint Venture, Advantages of Joint Venture in India, and Strategy for selecting Joint Venture are mentioned.

What is Joint Venture?

A Joint Venture is a strategic partnership when two or more people or businesses concur to contribute capital, goods, or services to a single commercial enterprise. Compatibility between the parties to the contract is essential for any joint venture to be successful in India. The associated parties should have a distinct objective, and conditions should be spelled out in the JV (Joint Venture) agreement provisions, in order to sustain a successful joint venture in India. For foreign investors conducting business in India, creating a joint venture firm is the preferred form of corporate structure.

Advantages of Joint Venture in India

• Creating a joint venture with the right company can offer many advantages, including economies of scale.
• If a business’s financial situation is poor. Financial restrictions can be lifted by partnering with the proper organization.
• When significant expenses are incurred before business purchase An advantageous type of contract is a joint venture. It allows for the sharing of losses and risks.
• Risk is shared in a joint venture. The risk is higher for large industries with substantial development expenses. Therefore, joint ventures are advantageous in such circumstances and aid in risk sharing.

Types of Joint Venture

• Contractual Joint Venture

This kind of joint venture maybe utilized in situations where the formation of a separate legal body is not required or is not practical.

This kind of agreement is suitable when there is a requirement to form the JV for a short period of time or when there is a temporary duty or limited activity.

• Equity Joint Venture

This arrangement entails the formation of a separate legal body in accordance with the consent of two or more parties.

The affiliated parties agree to contribute funds or other resources as part of their contribution to the corporate entity’s capital or assets.

For long-term, wide-ranging joint ventures, such as joint venture companies and joint venture limited liability partnerships, this structure is perfect.

Strategy for selecting Joint Venture in India

• Company and Joint Venture Strategy

In a company joint venture, the parties may work together to form a new firm or with the promoters of an existing one. The most freedom is available when establishing a new business since the entity can be set up to meet the requirements, intentions, and obligations of the involved parties. A Public Limited Company should have at least seven shareholders, but a Private Limited Company must have at least two. Every firm must have at least one director who resides in India according to the Companies Act of 2013.

• LLP and Joint Venture Strategies

For an LLP (Limited Liability Partnership), the JV (Joint Venture) participants create a legal entity in accordance with the Limited Liability Partnership Act of 2008. This could be accomplished by the JV partners creating a brand-new LLP (Limited Liability Partnership) or by transferring one partner’s interest in an already-existing LLP to the JV partner. An LLP firm needs a minimum of two chosen partners, one of whom must be an Indian citizen.

• Joint Venture and Partnership Firm

The Partnership Act of 1932 establishes a joint venture partnership. This kind of JV combines elements of a contractual JV and a corporate Joint Venture. The relationship between the parties who agree to split the profits of their firm, which is either controlled by all of them or by any of them acting on their behalf, often defines the business structure of a partnership JV. However, exceptions are provided for non-resident Indians or people of Indian descent. Partnership firms are not permitted for Joint Venture by foreign residents in India.

Conclusion

Any expenses and losses, as well as all gains and revenue, are the joint responsibility of the parties. Similar to a corporation, a joint venture has a distinct legal identity from the partners to the endeavor. Expansion is the primary motivation for starting a Joint Venture, some people also want diversification. Businesses that are doing well at home often expand overseas to take advantage of opportunities prevails globally.