Chadha & Co. is a full-service corporate and commercial law firm based in New Delhi, which advises foreign companies doing business in India on their Indian legal and regulatory issues. Clients include Fortune 500 companies as well as SMEs and family-owned businesses from over 40 countries, across industries and areas of law. The firm includes several foreign staff, and the team is supported by industry domain experts. It has a strong reputation for advising on inbound investment, M&A, joint ventures, technology transfers, contracts, competition, private equity, tax, corporate governance, litigation and arbitration, white-collar crime, employment and real estate, among other areas. As well as substantial experience in advising multinational clients on acquisitions, mergers, joint ventures, etc, in India, the firm has a well-respected regulatory practice, and maintains close working relations with the government and regulatory agencies in India, enabling it to provide comprehensive advice, representation and solutions.
Expand AllThe dynamics of joint ventures can be influenced by various economic, political and social factors. Inflation, high interest rates and the resulting increase in cost of capital, and the risk of recession, have led to some companies deferring their expansion plans. Geopolitical events like the war in Ukraine have created some uncertainties and risks that have influenced investment decisions. These headwinds have been somewhat offset by the fact that global supply chains are being realigned post-COVID-19, with many companies implementing their “China Plus One” strategy.
India has created a policy environment to attract foreign investment in manufacturing by implementing a “Make in India” policy and offering attractive production-linked incentives in many sectors. Offsets are mandatory in some sectors, such as defence, necessitating FDI, often in joint ventures with domestic companies.
As per industry reports, the sector in India that has been most significantly impacted by high commodity prices, rising interest rates and the Russia-Ukraine war is the food sector, which has resulted in businesses adopting a cautious approach when forming joint ventures in the food sector.
One of the trends that emerged in 2022 is the concern raised by Russian companies regarding the direct and indirect impact of the sanctions imposed on Russia by the European Union, the United States, the United Kingdom and other countries, and the significant challenges they may face while engaging in international trade, including setting up wholly owned subsidiaries or forming joint ventures in India.
In the recent past, several industries in India have witnessed significant joint venture activity. With the Indian government's recent emphasis on increasing the indigenisation of complex technical processes and technologies, coupled with the goal of making India self-reliant, a growing number of technical collaborations are taking place between foreign and Indian entities in the form of joint venture companies or through various forms of technology transfer agreements. Sectors that require a high degree of technical skill and knowledge, are capital-intensive, or need strong local expertise, existing infrastructure or distribution networks are generally more active than other sectors; such sectors include automotive, defence manufacturing, renewable energy, infrastructure, oil and gas, information technology and business process outsourcing, and drugs and pharmaceuticals.
In India, joint ventures are typically established either as incorporated joint ventures or as unincorporated joint ventures. An incorporated joint venture, in the form of a private limited company or a public limited company, is the most commonly used structure for setting up a joint venture company in India, especially by companies engaged in manufacturing activities.
A joint venture through a limited liability partnership is not as frequently used in India, but they do find application in fields like professional services and businesses where personal liability protection is desired while maintaining flexibility in operations.
Unincorporated joint ventures are also not extensively prevalent in India, but they do serve specific purposes. These arrangements are well suited for short-term project-based collaborations, and are contractual in nature. The most common forms of unincorporated joint ventures in India are unregistered partnerships, strategic alliances, contractual joint ventures and consortiums. They are used where the parties share mutual business interests and intend to collaborate for a common commercial objective but prefer to remain loosely associated with the other parties.
The main advantages of an incorporated joint venture are that it:
However, some of the disadvantages are that the process of incorporating a company, including a joint venture company, involves compliance with legal and regulatory requirements, which may be complex and time-consuming. Furthermore, company incorporation involves costs such as registration and legal fees, and compliance costs.
Some of the key advantages of an unincorporated joint venture are that the formation costs and compliance requirements are generally lower compared to those of incorporated joint venture entities. In addition, the parties involved may have greater control over the management and operation of the joint venture. However, some of the major disadvantages are that it does not have a distinct legal entity separate from its participants, it accords unlimited personal liability to its shareholders and partners, and it cannot own assets in its name.
The factors or drivers that determine the selection of the appropriate joint venture vehicle are a combination of commercial considerations and regulatory requirements, including:
