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.
Frequently Asked Questions
The term “Joint Venture Agreement” denotes an arrangement where two companies develop a new entity to their mutual benefit.
The reasons behind the deal of joint venture include Business Expansion, Development of New Products, Moving into New Markets, and Overseas Exposure.
The different types of Joint Venture Agreement are Contractual Joint Venture and Equity Based Joint Venture.
No, a Foreign Company cannot enter into a Joint Venture Agreement with an Indian Company for Lottery Business.
The advantages of a Joint Venture Agreement are to increase expertise, no loss to an existing business entity, and earning of profit at a low cost.
The parties involved in the transaction first enter into an MOU than a Joint Venture Agreement.
The factors to be considered before drafting a Joint Venture Agreement are Capital Contribution, Shares in cash flow, Preferred Return, Profit and Loss sharing ratio, Management and Control.
Normally a period of 4 to 5 days is required to draft a Joint Venture Agreement.
No, there is no need to physically present for the drafting of a Joint Venture Agreement, our experts will assist you with the process of drafting.
No, a Foreign Company cannot enter into a Joint Venture Agreement with a Nidhi Company.