Joint Venture Agreement
A Joint Venture Agreement should be executed between interested parties who agree to come together for a common objective. Get a thoroughly drafted Agreement with Filecrat.
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Joint Venture Agreement
A Joint Venture (JV) Agreement is an arrangement under which two or more parties agree to join together for a commercial objective for a particular period of time. A Joint Venture Agreement can be long term or short term depending upon the objective, nature and purpose of the agreement.
The parties have two options either incorporate a new entity or collaborate with the promoters of an existing company but incorporation is most flexible and suitable option for a joint venture because it provides the establishment as per the mutual understanding of parties regarding obligations, specification and intention of each of the parties. It will be incorporated under Companies Act, 2013.
Reasons to opt for a Joint Venture
Companies enter into joint venture agreements for the following reasons-
- To develop new products, services or technologies.
- To expand business by generating new networks.
- To gain access to wider markets by creating strategic alliances.
- To reduce cost of research and development by means of collaboration.
Characteristics of Joint Venture
- Promotes Teamwork: A joint venture is entered into between two or more parties to extract the qualities of each other. Coming together of these parties also leads to amalgamation of teams of such parties, leading to adaptation and enhanced team work.
- Risk and reward can be shared: The risk and reward accruing from the objective of the joint venture is shared amongst the parties. Hence, minimizing the losses and sharing the profits.
- No separate laws: There is no special body or law governing a joint venture. Hence, avoiding any complications which may arise due to such a venture.
Benefits of Joint Venture Agreement
- Access to new markets: A joint venture agreement enables access to new markets. For example, if an entity of USA enters into a joint venture with an Indian entity, the Indian entity consequently gains access to new markets, which are technologically advanced and geographically scattered and vice-versa.
- Innovation: Joint venture is helpful so as to upgrade the products and services as per the latest and advanced technology. Companies can come across the idea of providing better quality of products at less price through joint ventures.
- Economics scalability: One organization can use the strength of the other organization providing an advantage to both of them, to be able to achieve economic scalability.
- Low cost of production: Joint ventures help organizations provide a product or service with the highest quality at an efficient price which in turn is possible by reducing the cost of production.
- Brand name: A separate brand name can be created for a joint venture that will differentiate it from their existing separate businesses in the market. The goodwill of one organization which is already established can be used by the other organization under a joint venture.
- Access to advanced technology: An important reason for organizations to enter into a joint venture is to gain access to advanced technology that helps to produce quality products and services.
In India, joint venture agreements are subject to following laws:
- Indian Contract Act, 1872
- Law protecting Intellectual Property Rights such as:
1. Trade Marks Act, 1999
2. Copyrights Act, 1957
3. The Patents Act, 1970
- Foreign Exchange Management Act, 1999 (if any party is a Foreign Company)
- Any other applicable act or regulations
Types of Joint Ventures in India
- Equity joint venture: In this system, two or more parties come together to form an independent legal entity by contributing funds and assets to it. This type of joint venture is considered most ideal for long term corporate relationship and includes joint venture companies and LLPs. It can be also termed as incorporated joint ventures.
- Contractual joint venture: This type of joint venture is established for temporary tasks or for a limited/ contingent time period. It includes partnerships, Cooperation agreement and strategic alliances. It can be also termed as unincorporated joint ventures.
Elements of a Joint Venture Agreement
- Restriction/ prohibition on assignment
- Non-compete clauses
- Jurisdiction in case of any dispute
- Conflict Resolution Methods and their procedures
- Parties or Co-ventures: A joint venture agreement must identify the parties who have agreed to run a business together.
- Contribution of each party: A joint venture agreement shall identify how much money, time and such other essentials each party will invest.
- Purpose: A joint venture agreement shall clearly state the purpose for which the parties have united.
- Term of validity: A joint venture agreement shall identify the time frame of validity of such joint venture. It can be long term or short term depending upon running of the business.
- Termination of venture: Such an agreement shall state the time or the objective after which the venture terminates.
Dissolution of Joint Ventures
Joint ventures are not permanent in nature and hence can be dissolved in following situations:
- Due to change in the market conditions
- Due to development of any new goal
- Incapability of any of the party to achieve the purpose of joint venture
- The purpose for which it was established is fulfilled.
- Time period of business relationship between the co-ventures elapsed
- The violation of terms of agreement by any of the party
- Consultation with our Expert
- 1st draft of the Agreement
- Final draft of agreement after revisions
- PAN Card of all the parties
- Address Proof (Bank Statement/ Electricity/ Telephone Bill) of all the partiesBrief write up on nature of joint venture
- Brief write up on nature of joint venture
Yes, a joint venture can be created as a separate business entity.
A joint venture and a partnership may have some similarities but they are not the same. A joint venture is for a temporary term while a partnership is for a permanent or an indefinite period.
A joint venture is an easy way to get access to foreign markets. The purpose of a joint venture could be anything which may include compilation of assets, strength and also increasing the competitive advantage while minimizing risk.
The duration of a joint venture can be long term as well as short term depending upon the running of business and the period agreed upon.
In India, there are few sectors where 100 percent FDI is permitted. In such a situation a joint venture risk is the available option to enter in such sectors along with low risk and other joint venture benefits.