A foreign company can invest in an Indian company through a joint venture agreement in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories. Carrying out of operations through a joint venture with an Indian partner may provide the following advantages to a foreign investor :
- Already established distribution / marketing set up of the Indian partner;
- Available financial resources of the Indian partner;
- Already established contacts of the Indian partner that help ease the process of setting up operations.
Drafting of joint venture agreement (JVA) is of key importance as it lays down the terms and conditions and the governing powers of the JV partners inter-se. The foreign company can enter into JV by forming a company or any other forms of entity like LLP.
Pre Joint Venture Exercise
- Selection of a good local partner is the key to the success of any joint venture
- Personal interviews with a prospective joint venture partner should be supplemented with proper due diligence
- Once a partner is selected generally a memorandum of understanding or a letter of intent is signed by the parties highlighting the basis of the future joint venture agreement
- A Joint venture Agreement requires dexterous legal drafting and should incorporate clearly the relevant clauses that specify the mutual understanding arrived at between both parties as to the formation and operations of the Joint venture company
A brief checklist of important clauses is as follows-
- The proportion of shareholding in the joint venture company
- Specify nature of shares, indicate their transferability conditions
- Composition of the Board of Directors, Appointment of Chairman ,Quorum of Board meetings ,Casting vote provisions
- General meeting
- Appointment of CEO/MD
- Appointment of Management Committee
- Important decisions with mutual consent of partners
- Dividend policy
- Funding provisions
- Access conditions
- Change of control/exit clauses
- Anti-compete clauses
- Maintaining Confidentiality
- Indemnity clauses
- Assignment
- Break of deadlock
- Dispute Resolution (Arbitration & Conciliation)
- Applicable law
- Force Majeure
- Termination provisions
