India opened its doors to the global economy in 1993 and the era of economic liberalization began. It draws all the world's big business houses to come to India and explore the Indian market.
But they were unaware of the Indian market environment and Indian laws. So they look toward the Indian companies to set up a Joint Venture with them and invest money through Foreign Direct Investment (FDI).
FDI policies have been very liberal since 1993 and 100% of FDI is permitted in some sectors such as Medical Equipment, Print Media, Etc. And thus Joint Ventures becomes very popular among foreign investors.
Generally, FDI means an investment made by an investor into a business located in another country to acquire assets in a foreign company.
In Legal Terms, FDI means investment through capital instruments by a person resident outside India in an unlisted Indian company; or ten percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company
Generally, Joint Venture means a contractual arrangement between two parties for the joint control of the company assets and collectively they try to achieve their economic goal.
In Legal Terms, Joint Venture means:
A joint arrangement, entered into in writing, whereby the parties that have joint control of the arrangement, have rights to the net assets of the arrangement.
Collaboration for research and technologies, Joint Tenders for bidding, Strategic alliances, are some of the types of Contractual Joint Ventures.
There are no separate laws for Joint ventures in India.
Contractual Joint Venture is governed by the Partnership Act, 1932 because it is like a partnership that is binding by the legal agreement no separate Legal Entity is formed.
Equity-based Joint Ventures are regulated by the Companies Act 2013 because a new legal entity is formed which are either Public or Private Sector companies.
A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
A company, trust, and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy
Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms and conditions specified in Schedule II of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
Foreign Investment is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.
As an Indian company:
For registration and incorporation, an application has to be filed with the Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
Limited Liability Partnership:
To register an Indian LLP, you need to first apply for a Designated Partner Identification Number (DPIN), which can be done by filing eForm for acquiring the DIN or DPIN.
Then you would then need to acquire your Digital Signature Certificate and register the same on the portal. Thereafter, you need to get the LLP name approved by the Ministry. Once the LLP name is approved, you can register the LLP by filing the incorporation form.
Liaison Office/Representative Office:
The liaison office acts as a channel of communication between the principal place of business or head office and entities in India.
Approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI).
Project Office:
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions.
Branch Office:
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for Exporting and Importing goods, carrying out research work, representing a parent company, Etc.
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer.
Limited Liability Partnership:
A foreign LLP can establish in India by filling Form 27 (Registration of particulars by Foreign Limited Liability Partnership (FLLP)). The eForm has to be digitally signed by an authorized representative of the FLLP.
There is no mandatory requirement to apply and obtain DPIN or DIN for Designated Partners of FLLP but the DSC of the authorized representative is mandatory.
Foreign Direct Investment (FDI) Policy:
FDI under the automatic route (means no prior approval of RBI or Government of India is needed) is now allowed in all sectors, including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling.
Automatic Route:
No prior approval is required for FDI under the Automatic Route. The only information to the RBI within thirty days of inward remittances or issue of shares to Non Residents is required.
Government Approval:
Foreign Investment proposed not covered under the Automatic Route are considered for Governmental Approval on the recommendations of the Foreign Investment Promotion Board (FIPB).
According to the FDI Policy Circular of 2016, proposals for FDI would be filed online on FIPB Portal.
Liabilities in Joint Ventures:
Under Partnership Act, 1932:
Each partner is liable for all acts of the business committed when he is a partner together with all the other partners and even separately.
A retiring partner may discharge his liability to any third party before his retirement by arranging for him and that third party.
The partner will be held liable for every act done by the firm before his retirement notice becomes public.
The firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.
All the parties are liable for every act done by the firm before the dissolution notice becomes public.
Except for the partner who dies, or who is bankrupt, or of a partner who, not having been known to the person dealing with the firm to be a partner, or retires from the firm.
The partner after the dissolution of a partnership may carry the unfinished business to finish it.
Every partner of LLP is for the business of the LLP, the agent of LLP, but not of another partner.
A partner is not personally liable, directly or indirectly for an organization solely because of being a partner of a limited liability partnership
Whenever a partner acts for an LLP in the course of business, an obligation whether arising in contract or otherwise is solely the obligation of the LLP which is to be met out of its property
A foreign partner will have liability as per the domestic laws on the liability of partners in Joint Ventures.
The foreign partner may also have liability under Reserve Bank of India & Foreign Direct Investment laws and regulations.
Conclusion:
Joint Ventures helps the company to grow exponentially but their structure can be complex. There should be excellent communication between the partners to make the venture successful.
FDA is a great way to bring money to one's country. It helps the economy to thrive and also provides employment. But it should be kept in check so that the sovereignty of the nation remains intact.
Currently, India is hosting many successful Joint Ventures which are giving valuable thrust to the Indian economy.