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What is A Joint venture

An association between any group of individuals, whether legal or natural entities, who have entered into an agreement for engaging in business together or have decided to undertake a certain project without giving up their individual corporate images and structures is a Joint Venture law.

Advantages of forming A Joint venture:

  • Any joint venture project lessens the risks entailed in stepping into a completely new and untested business area.
  • A joint venture helps to reduce costs.
  • When you get an opportunity to enter into a hitherto-unexplored business arena, you can enjoy several potential business prospects. You can gain novel learning experiences in that business field and this can spell shining growth prospects for developing nations like India.

Indian Laws Governing Joint Ventures:

The creation, conduct or discontinuance of joint ventures in India is not governed by any exclusive set of principles or laws. Those agreements responsible for regulating joint ventures here must do so in keeping with the general principles of justice upheld by the Indian legal system. These rules must comply with criteria that Indian lawmakers have imposed regarding technology transfers. Getting government approval for the creation of a joint venture may also be required.

Government Approval for Joint Ventures in India

In India, joint ventures need to be approved by the government when such a joint venture involves an NRI partner or a foreign partner. This sanction may be obtained either from the Foreign Investment Promotion Board (FIPB) or the Reserve Bank of India (RBI). When a joint venture falls under an automatic route, the RBI approval is necessary. However, for all those joint venture projects not included in the automatic route, the FIPB special approval is adequate and there may be no need for the RBI permit.

The Indian Government has categorically stated more than thirty high priority zones which cover majority of the industrial areas. The investment proposals that register a maximum of 74% foreign equity are automatically approved in a matter of fourteen days, subject to an application made to the RBI. But this foreign equity approval does not end at 74% or to high priority industries only. Equity beyond 74% and in industrial sectors other than those mentioned in the high priority list has been opened for investments too, subject to government approval. For such kinds of investments in those areas outside the high priority list, an application must be filed in a form FC with the Secretariat for Industrial Approvals. This application is responded to within six weeks. In areas like coal washeries, power generation, electronics, units in the EPZs or Export Processing Zones or an Export Oriented Unit i.e. an EOU are typically handed full foreign ownerships. However for all those proposals which do not come under the afore-mentioned criteria, the FIPB may give single-window clearance. Foreign investments have been greatly welcomed in areas like power, luxury railways, telecom industries, steel plants and coal washeries. Incidentally, the hydrocarbon sector which handles the exploration, manufacturing, refining as well as marketing of all petroleum products has also opened its doors to foreign investments with the government sanctioning foreign investment to the tune of 50% and 49% in mining and telecom sectors respectively. A proposal to eliminate the prerequisite for foreign equity to cover the foreign exchange requirements in capital goods imports is being considered by the Indian Government. India’s improved rankings in the balance of payments arrangement have necessitated this consideration.

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