Joint Venture vs Subsidiary in India

Introduction

Foreign and domestic businesses often face a choice: start a Joint Venture or set up a Subsidiary in India. Both structures offer unique benefits depending on ownership, control, and market entry goals.

What is a Joint Venture in India?

A Joint Venture (JV) is an arrangement where two or more entities partner for a specific business purpose. In India, a JV commonly involves a foreign investor collaborating with an Indian business to enter the market.

Key Features of a Joint Venture:

• Shared Ownership: Partners bring in capital, skills, or infrastructure
• Defined Purpose: Formed for a particular goal or project
• Joint Control: Decisions are made as per the agreement
• Profit Sharing: Defined clearly in the JV agreement
• Example: Maruti Suzuki India Limited began as a joint venture between Maruti Udyog Ltd. and Suzuki Motor Corporation.

What is a Subsidiary Company in India?

A Subsidiary is a company that is either wholly or partially owned by another (parent) company. In India, both Indian and foreign entities can incorporate a subsidiary under the Companies Act, 2013.

Types of Subsidiaries:

• Wholly Owned Subsidiary (WOS): 100% shares held by the parent
• Partially Owned Subsidiary: Parent holds more than 50% shares
• Example: Google India is a wholly owned subsidiary of Google LLC, USA.

Joint Venture vs Subsidiary: What Are the Key Differences?

Source: MCA – Incorporation Guidelines

Why Choose a Joint Venture in India?

Benefits:

• Local Market Expertise: Access Indian business practices and regulations
• Shared Financial Risk: Risks are distributed among the partners
• Faster Market Access: Leverage partner’s networks and licenses
• Combined Resources: Share infrastructure and intellectual property

Challenges:

• Disputes in Control: Decision-making delays can occur
• Profit Conflict: Differences in reinvestment or distribution policies
• Exit Issues: Termination can be legally complex if not pre-defined

Why Choose a Subsidiary in India?

Benefits:

• Complete Control: Parent directs all operations and strategy
• Brand Consistency: Maintain uniform identity and standards
• Profit Retention: Earnings are fully retained post-tax
• Centralized Compliance: Better internal monitoring and reporting

Challenges:

• Initial Investment: Requires higher capital and infrastructure
• Regulatory Burden: Must comply with Indian corporate, tax, and labour laws
• Local Hiring: Need for experienced Indian team for daily operations

Reference: Companies Act, 2013 – MCA

How to Set Up a Joint Venture in India?

Step-by-Step Process:

• Select an Indian Partner: Align with a business that complements your goals
• Draft a JV Agreement: Define terms of investment, management, exit, etc.
• Decide Legal Form: Usually registered as a Private Limited Company or LLP
• Register with MCA: Submit incorporation documents through the SPICe+ form
• Apply for Tax and Regulatory Licenses: PAN, TAN, GST, and FDI approvals (if needed)

Refer to: FDI Policy – DPIIT

How to Incorporate a Subsidiary in India?

Steps:

• Choose Type of Subsidiary: Wholly or partially owned
• Apply for Digital Signature (DSC): Required for directors/promoters
• Reserve Company Name: Through RUN service on MCA portal
• File SPICe+ Form: For incorporation, including MoA and AoA
• Get PAN, TAN, and Bank Account: For compliance and operations
• GST Registration (if applicable): Based on turnover and services

Detailed Guide Available At: MCA Incorporation Portal

Which One is Right for You?

Choose a Joint Venture If:

• You seek a local partner for easier market access
• You want to share risks, costs, and responsibilities
• You are entering the Indian market temporarily or for specific projects

Choose a Subsidiary If:

• You want full control over operations and decision-making
• You have sufficient investment for long-term presence
• You wish to build a permanent brand presence in India

Conclusion

Choosing between a Joint Venture and a Subsidiary in India depends on your control needs, budget, local support, and future plans. JVs are ideal for those looking for partnerships and reduced investment, while subsidiaries suit businesses aiming for complete control and long-term establishment. Always align your decision with the Indian legal framework and your overall business strategy.

Suggested Read :

Documents Required for Indian Subsidiary Registration

Subsidiary vs Joint Venture for Foreign Investors

How to Hire Foreign Directors for Indian Subsidiaries?

Joint Venture between Indian & Foreign Partner?

DPIIT Recognition for Indian Subsidiaries

FAQs