A joint venture is a contractual agreement, between two or more parties, for a common commercial purpose. The concerned parties agree to share markets, profits, intellectual property, assets and knowledge for the new business venture. Further, the concerned parties own the shares of the joint venture company in prior agreed proportion. Formations of joint ventures in India are governed by company law.
The purpose of joint ventures is that two companies can achieve more together, in terms of growth, revenue and so on. There are several benefits of entering in joint ventures, such as:
•Pooling of resources
•Full utilization of under utilized resources
•Higher rates of profits
•Low risk factor
Company Law: Different Types of Joint Ventures in India
There are various forms of joint ventures in India, formed under company law. The types of joint ventures mainly depend on, objective of the joint venture, number of parties involved and duration of the joint venture. Some popular forms of joint ventures in India, are:
A foreign company authorizes an Indian company to use its strong brand name, to produce a certain product. The overseas company charges a license fee, for sharing its brand name, patents or copyrights. In this manner, the foreign company ensures an immediate access to the Indian market at a lower price. However, the foreign company does not have any control over the distribution, sales and image of the product in the Indian market.
In this type of a joint venture, a foreign company (franchisor) lends its well-known brand name, goodwill, technical know-how and expertise, to an Indian company (franchisee), to conduct its business. In turn, the franchisor receives a specific amount of turnover from the franchisee. This type of a joint ventures involve low risk, less investment and ensure fast entry in Indian markets for the franchisor. McDonalds is an example of this type of franchising in India. It lends its brand name and business know-how to individual entrepreneurs.
The success of a joint venture projects depends on proper planning and clear objectives. To minimize any complications in later stages, it is essential to thoroughly discuss the terms and conditions of the contract. Further, before signing the contract, it is important to consult a lawyer who is well versed with company law and international laws.