What is Joint Venture Agreement?
A Joint Venture Agreement is an arrangement where two companies develop a new entity to their mutual benefit. It normally involves a sharing of resources, which could include capital, personnel, physical equipment, facilities or intellectual property such as patents. The motive behind forming a joint venture comprise business expansion, development of new products or moving into new markets, mainly overseas.
Since the joint venture is not a legal entity, it does not enter into contracts, hire employees, or have its own tax liabilities. These activities and obligations are controlled through the co-ventures directly and are governed by contract law.
Advantages of Joint Venture Agreement
- A joint venture agreement provides a company with expertise it may not have or may not be willing to invest in acquiring itself.
- It will give you access to better resources, such as specialized staff and technology. All the equipment and capital that you needed for your project can now be used.
- Joint ventures can be flexible.
- You get to save money by sharing advertising and marketing costs.
- Despite having little to no money at your disposal, you can create more venture deals in the process.
- International joint venture eradicates the risk of discrimination.
- It is only a temporary arrangement between two parties.
- Your chances of success will become higher as you are already riding with a renowned brand. As a result of this, your credibility will also vastly improve.
- Access to greater resources, including specialized staff and technology.
- Provide companies with the opportunity to gain new capacity and expertise.
Two main types of Joint Venture Agreement
- Contractual Joint Venture
- Equity based Joint Venture
It Includes Company, Partnership Firm, LLP, Venture Capital Fund, Trusts, and Other Entities.
Prohibited Segments for Equity-based JV
Foreign companies are prohibited to enter into joint ventures in the following areas:
- Lottery Business carried on
- Gambling and Betting business
- Chit Funds
- If it’s Nidhi Company
- Trading in Transferable Development Rights
- Real Estate business or construction of farm houses
- Any Manufacture of tobacco products and substitutes
- Sectors that are not open to private sector investment e.g. Atomic Energy
- Railway Operations (it excludes permitted areas of Railway Infrastructure)
Time is taken to form Joint Venture Agreement
It takes approximately 3 to 4 working days to deliver the joint venture agreement and if any modification required later on then a day or two working days more for such modification.