A joint venture is a new enterprise owned by two or more participants.

It represents a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. It is essentially a medium to long-term contract which is specific and flexible. Though, the joint venture represents a newly created business enterprise, its participants continue to exist as separate firms. A joint venture can be organized as a partnership firm, a corporation or any other form of business organisation which the participating firms choose to select. It generally has the following characteristics:-

   

Contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking. Joint property interest in the subject matter of the venture. Right of mutual control or management of the enterprise. Right to share in the property.

Thus, joint ventures are of limited scope and duration. They involve only a small fraction of each participant's total activities. Each partner must have something unique and important to offer the venture and simultaneously provide a source of gain to the other participants. However, the participants' competitive relationship need not be affected by the joint venture arrangement. PURPOSES FOR ESTABLISHING A JOINT VENTURE LEVERAGING RESOURCES : the conduct of business mandates a huge pool of resources extending from massive financial backup to plenty of skilled manpower. Cross-border business projects are all the more demanding and the best solution is to either outright acquire or share them by entering into a joint venture. EXPLOITING CAPABILITIES AND EXPERTIS : Parties to a joint venture may have complementary skills or capabilities to contribute to the joint venture; or parties may have experience in different industries which it is hoped will produce synergistic benefits. Such sharing grants a competitive advantage to the joint venture partners over other players in the market. SHARING LIABILITIES:a joint venture also offers parties an opportunity to jointly manage the risks associated with new ventures. Through a joint venture they can limit their individual exposure by sharing the liabilities MARKET ACCESS : joint ventures are the most efficient mode of gaining better market access. companies utilize joint venture agreements to expand their business into other geographies, consumer segments and product markets. In the case of a cross-border joint venture, the involvement of a locally-based party may be necessary or desirable in countries where it is difficult for a foreign company to penetrate the market or where the local law limits the ownership structure by foreigners. FLEXIBLE BUSINESS DIVERSIFICATION: joint ventures offer many flexible business diversification opportunities to the partners. a joint venture may be set up, as a prelude to a full merger or only for part of the business. it offers a creative way for companies to enter into non-core businesses while maintaining an easy exit option.

Benefits of a Joint Venture

 

The main motive is to share the risks. It reduces the risks in a number of ways as the activities can be expanded with smaller investment outlays than if financed independently. The expressed purpose of most of the joint ventures is knowledge acquisition. The complexity of the knowledge to be transferred is a key factor in determining the contractual relationship between the partners. One or more participants may seek to learn more about a relatively new product market activity. This might concern all aspects of the activity or a limited segment like R&D, production, marketing or product servicing. A small firm with a new product idea that involves high risk and requires relatively large amounts of investment capital may form a joint venture with a large firm. The larger firm

 

might be able to carry the financial risks and be interested in becoming involved in a new business activity that promises growth and profitability. In addition, the larger firm might thereby gain experience in the new area of activity that may represent the opportunity for a major new business thrust in the future. Tax advantages are a significant factor in many joint ventures. It also helps in expanding the firm's operations into foreign countries. The local partners contribute in the form of specialised knowledge about local conditions, which are essential to the success of the venture. Difficulties faced by joint venture

    

Inadequate preplanning for the joint venture. The hoped-for technology never developed. Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. People with expertise in one company refused to share knowledge with their counterparts in the joint venture. Parent companies are unable to share control or compromise on difficult issues.

A successful joint venture needs to fulfill the following requirements:-

     

Each participant has something of value to bring to the venture. The participants should engage in careful preplanning. The agreement or contract should provide for flexibility in the future. There should be provision in the agreement for termination including buyout by one of the participants. Key executives must be assigned to implement the joint ventures. A distinct unit be created in the organisational structure which has the authority for negotiating and making decisions.

THERE ARE FOUR TYPES OF JOIN VENTURE 1)COMPANY JOINT VENTURE Here the parties to the JOINT VENTURE would create a joint venture company (JOINT VENTURE Co), under the Companies Act, 1956 and would hold the shares of such company in an agreed proportion. This arrangement can also be termed as Equity/Corporate JOINT VENTURE. The three most common ways of creating of joint venture companies may be described as follows: i)Parties subscribe to shares on agreed terms ii) Transfer of business or technology by one party and share subscription by the othe iii) Collaboration with the promoters of an existing company 2 )PARTNERSHIP A partnership JOINT VENTURE or hybrid models are unincorporated forms of JOINT VENTURE which represent the business relationship between the parties with a profit motive. This is reflected in the tax regime, whereby partners are separately assessed even though the profits are computed as if the partnership were a separate entity. This JOINT VENTURE has inherent disadvantages including unlimited liability, limited capital, no separate identity etc. Whilst tax and commercial factors may sometimes lead to the use of such unincorporated vehicles, the majority of business ventures tend to use a corporate vehicle for establishing a JOINT VENTURE, the share capital of which is divided between the parties to the JOINT VENTURE. 3)CO-OPERATION AGREEMENTS / STRATEGIC ALLIANCES

The most basic form of association is to conclude a purely contractual arrangement like a cooperation agreement or a strategic alliance wherein the parties agree to collaborate as independent contractors rather than shareholders in a company or partners in a legal partnership. This type of agreement is ideal where the parties intend not to be bound by the formality and permanence of a corporate vehicle. Co-operation agreements / strategic alliances can be employed for the following types of business activities: Technology transfer agreements Joint product development Purchasing agreements Distribution agreements Marketing and promotional collaboration Intellectual advice Engineering, Procurement and Construction (EPC) arrangements 4)LIMITED LIABILITY PARTNERSHIP In 2008, the Limited Liability Partnership Act, 2008 (LLP Act) introduced limited liability partnerships (LLPs) in India. An LLP is a beneficial business vehicle as it provides the benefits of limited liability to its partners and allows its members the flexibility of organizing their internal structure as a partnership based on an agreement. At the same time a LLP has the basic features of a corporation including separate legal identity. The LLP Act permits the conversion of a partnership firm, a private company and an unlisted public company into an LLP, in accordance with specified rules. As a consequence of the conversion, all assets, interests, rights, privileges, liabilities and obligations of the firm or the company may be transferred to the resulting LLP and would continue to vest in such LLP. Joint Ventures by Foreign Companies A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories such as real estate, insurance, agriculture and plantation. Foreign investment into India is governed by theForeign Direct Investment (FDI) policy and the Foreign Exchange Management Act, 1999 (FEMA). The Government has set up a Indian Investment Centre in the Ministry of Finance as a single window agency for authentic information or any assistance that may be required for investments, technical collaborations and joint ventures. It advises foreign investors on setting up industrial projects in India by providing information regarding investment environment and opportunities, the Government industrial and foreign investment policies, taxation laws and facilities and incentives and also assists them in identifying collaborators in India. For such foreign investments into India, a two tier approval mechanism has been provided:1. Automatic Approval Route:- FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. 2. Foreign Investment Promotion Board (FIPB) Approval Route:- FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for

investment promotion and to consider and approve/recommend proposals for foreign investment. Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The proposals to FIPB shall contain the following information:Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and If so, details thereof and the justification for proposing the new venture or technical collaboration; Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing; Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.