This document provides an overview of joint ventures and strategic alliances. It defines a joint venture as a business arrangement where two or more parties pool resources to achieve a goal, sharing both risks and rewards. Key objectives of joint ventures include gaining access to new markets, reducing costs, and risk sharing. The document outlines the key differences between equity-based joint ventures, which create a new shared entity, and strategic alliances, which do not share ownership. It provides details on forming a joint venture company, prohibited sectors for foreign investment, and critical factors for a successful joint venture such as trust between partners and clear objectives.

1. Joint Venture

2. 2
Contents
 Introduction
 Joint Venture & Strategic alliance – Key Features
 Forms of Equity Joint Venture
 Term Sheet – Key Components
 Tax issues
 Critical Factors for Successful Joint Venture

3. Joint Venture – Concept
What is a Joint Venture ?
• A joint venture (JV) is a business arrangement in which two or more parties agree to pool
their resources and expertise to achieve a particular goal. The risks and rewards of the
enterprise are also shared.
• A joint venture can also be very flexible having a limited life span and only cover part of
what you do, thus limiting the commitment for both parties and the business' exposure.
• What matters when forming a joint venture is cash flow, which creates value

4. Joint Venture – Objectives
Key Objectives :
 Gaining access to markets in the same industry
 Gaining new capacity and expertise
 Reducing costs
 Gaining access to new markets in foreign countries
 Gaining Access to new technologies / financial resources
 Developing new brands/extending own brands
 Risk Sharing

5. 5
Equity based Joint Venture – Features
 There is an agreement to either create a new entity or for one of the parties to join
into ownership of an existing entity
 Shared Ownership by the parties involved
 Shared management of the jointly owned entity
 Shared responsibilities regarding capital investment and other financing
 Shared profits and losses according to the Agreement
 The form of business entity owned may vary – company, partnership firm, trusts,
LLP, venture capital funds etc.
 Foreign company may want to exercise management control even though it is not
investing in the JV company
From the point of a foreign company, the most preferable form of business entity is
company.

6. 6
Strategic Alliance– Features
 New Jointly – owned entity is not created
 Partners do not share ownership of the business entity
 Partners have a common intention – of running a business
 Each party brings some inputs
 Both parties exercise some controls on the business venture
 Capital investment depends on terms of contract
 Very low level of statutory regulation required
 Zero lead time to start activities
 Legal relations between the parties are structured and regulated on a contractual basis
 Companies pool resources and maintain their respective identities
Foreign companies often resort to Strategic Alliance when they do not wish to invest in the equity
capital of a business in India even though they wish to exercise controls and want to decide the
shape that the venture takes

7. Comparison – Equity Based Vs Strategic Alliance
Particulars Equity Based Joint Venture Strategic alliance
Liability Limited Limited by Contract
Formation Company formation – Two to Three
weeks
Zero lead time to start
activities
Capital Both parties contribute capital Depends on terms of contract
Management
Controls
Statutory protection of rights of JV
partners
Limited statutory protection
of rights
Ownership Ownership shared by parties Ownership is not shared.
Govt Approvals Subject to FDI policy (Foreign
Investment)
No approvals required
Exit Route (1) JV partner may buy the other
(2) Both partners may sell their
shares to a third Party
(3) wound up of company
Subject to the terms of the
contract
Source : Anil Chawla Law Associates LLP

8. 8
Forms of Equity Based JV
Most preferred structureCompany
• Types - Private Limited & Public limited Company
• Shareholders : Private Company (2) , Public Company (7)
• The shareholders may be foreign citizens or foreign companies
Less Preferred StructurePartnership Firm
• Not permitted for joint ventures in India in most of the cases.
• Exceptions are made in case of NRI but subject to various conditions.
Less Preferred StructureLLP
• Theoretically, foreign companies may use an LLP as a joint venture entity
• Conditions prescribed are long
• Getting approvals a difficult process in the context of foreign investment
Source : Anil Chawla Law Associates LLP

9. 9
Prohibited Sector for Equity Based JV
Foreign companies are not permitted to establish joint ventures in the following areas:
 Lottery Business
 Gambling and Betting
 Chit Funds
 Real Estate business or construction of farm houses
 Manufacture of tobacco products and substitutes
 Sectors not open to private sector investment e.g. Atomic Energy and Railway Transport

10. 10
Structuring & Tax Issues
 Residents are taxable in India on their worldwide income, whereas non-residents are taxed
only on Indian source income
 Returns to foreign investors from India are generally structured as capital gains or interest
income
 Indian Residents - Certain typical Indian tax considerations will be relevant (Section 56)
 Tax Treaties –NRI Investment through intermediate jurisdiction
 Preferred vehicle for foreign investment
 Mitigate tax leakage
 Favourable legal and regulatory environment
 Beneficial provisions with regard to capital gains tax and tax withholding on interest
payments
 Lower domestic tax regime
 Reduce the effective tax liability of foreign investor
 Override the provisions of ITA

11. 11
Joint Venture Agreement - Key Terms
 The object, purpose and scope of the joint venture
 Capital Structure / Funding Arrangement
 Management & Composition of Board of Directors
 Reserved Matters
 Deadlock Resolution
 Representations and Warranties
 Indemnification
 Transfer Restrictions
 Confidentiality
 Exit strategies - Buy /sell, Put / call options

12. Essential factors for a successful JV
 Trust is Vital
 Partners should be transparent about the value of contributions, expectations,
responsibilities, ownership of intellectual property,etc
 Create a sound structure
 Careful negotiation and drafting of commercial issues, governance structures,
operating agreements and break-up considerations is critical
 Deadlines should be imposed at an early stage
 Decision processes should be efficient in order to be able to move fast
 Having clear agreement on objectives and management control issues
 Partners strategic compatibility
 Manage the relationship with your partner carefully with permanent channels of
communication

13. Annexures

14. Tax Treatment
Income
stream
Tax Treatment
Mauritius Singapore Cyprus
Sale of
shares
• Income from the sale of shares of
an Indian Company by a Mauritius
Company is only taxable in
Mauritius
• Mauritius levies no capital gains
tax. Hence, there will be no tax
incidence
• Income from the
sale of shares of an
Indian Company by
a Singapore
Company is only
taxable in
Singapore.
• No capital gains tax
Levied in Singapore.
Hence, there will be
no tax incidence.
• Income from the
sale of shares of an
Indian Company by
a Cyprus Company is
only taxable in
Cyprus
• No capital gains tax
Levied in Cyprus.
Hence, there will be
no tax incidence.

15. Tax Treatment (Continued…)
Income
stream
Tax Treatment
Mauritius Singapore Cyprus
Buyback 20% BBT payable by the Indian
company
20% BBT payable by the
Indian company
20% BBT payable by the
Indian company
Dividend • 15% DDT payable by the Indian
Company
• Dividend Income taxable as
business income in Mauritius at 15%
• Mauritius Company eligible to
avail foreign tax credit of 80% which
will reduce the effective tax
incidence to 0%-3%
• 15% DDT payable by
the Indian Company
• Dividend received
exempt from tax in
Singapore
• 15% DDT payable by
the Indian Company
• Dividend received
exempt from tax in Cyprus
Interest income • 40% withholding tax
• 5% withholding tax – ECB
• 15% withholding tax –
• Taxed as Business
Income in Singapore at
17%
• Tax credit available
• 5% withholding tax –
ECB
• 10% withholding tax
• Taxed as Business
Income in Singapore at
10%
• Tax credit available
• 5% withholding tax –
ECB

16. Thank You
About the Author:
He is an MBA (Finance) with over 8 years of experience into investment
banking. Have undertaken extensive training in financial modelling and has
strong deal origination and execution experience on Private Equity, M&A &
Debt Syndication transactions across various sectors.
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