MeaningBusiness firms are of various types namely, private or government owned or global enterprises. At present, if any business firm can join hands with another business firm for mutual benefit. These two firms may be private, government-owned or a foreign company. Joint ventures can be adopted at any scale. It is not dependant on the size or strength of the firms. It can even collaborate for short term projects. A joint venture becomes flexible based on the party's requirements. This requires to be clearly declared in a joint venture agreement to avoid conflicts further. A joint venture can also be the outcome of an agreement between two business firms in different countries. In such case, there are certain requirements provided by the governments of the two countries, that will have to be followed strictly. Hence, joint ventures may involve many things, depending upon the context in which it is conducted. But in a wider sense, a joint venture is can be described as the pooling of resources and proficiency by two or more business firms, to achieve a particular objective. The risks and rewards of the business are also shared. The reasons for joint venture often include business development and growth, developing new products or moving into new markets, especially in another country. The advantage in this kind of a joint venture is that two or more (parent) companies mutually agree to share capital, technology, human resources, risks and rewards. India promotes joint venture companies and identifies it as the best way of doing business and is not bound by any separate law.
Here we take a look at the modes to start a joint venture company:
- Two parties, individuals or two independent companies can incorporate a company in India. A business operation of one party is transferred to a new company. For such transfer to take place, shares are issued by the new company and subscribed by the above mentioned party and the other party subscribes for the shares in cash;
- The above two parties are subscribed to the shares of the joint venture company in a mutually agreed proportion, in cash and set up a new business;
- The Promoter shareholder of an existing Indian company and another party that may also be an individual or a company can work together to jointly carries out the business operations of that company. The other party can be a non-resident or resident and can take up shares of the company by payment in cash. It is mandatory for all joint ventures in India to obtain government approvals if a foreign partner or a Non-Resident Indian (NRI) is involved in this venture. The approval can be obtained from the Reserve Bank of India or Foreign Investment Promotion Board (FIPB), depending on the circumstances.