A joint venture involves two or more businesses intended to pool their expertise and resources with an object to achieve common business goals. The objective of joint venture may be business expansion, new product development or entering into new market.
Joint Venture may be an equity joint venture or contractual joint venture. Whereas in Equity joint venture a separate legal entity is created in accordance with the agreement between two or more parties. The partners contribute money, resources, technology and expertise to this legal entity based on the terms set out in “Joint Venture Agreement”. This structure is best suited to long-term business objectives.
A Contractual Joint Ventures is generally entered where the project involves a temporary task or for short duration. In this case separate legal entity is not created and the terms and conditions are set out in Joint Venture Agreement.
Type of Joint Ventures
Limited Liability Partnership (LLP)
Cooperation agreement/strategic alliance
Appropriateness of particular form of joint venture depends on variety of factors including proposed object of JV, size of operations, management rights, expertise area etc.
Taxes and Joint Venture
The profits of joint ventures are taxed as per the type of legal entity selected for entering into such joint venture arrangement which is generally 30% of tax profits. Sale of shares in an Indian company is usually taxed in India as capital gains, even if the seller is not a resident of India subject to tax treaty with particular country.
Profit repatriation and exit
Indian law allows free repatriation of profits after meeting applicable tax liabilities. Investment exit processes is also not much complicated, and profits can be repatriated once all the taxes, debt and other liabilities are settled. The exit options may include outright sale of equity, slump sale of assets and liabilities, winding up/liquidation of entity etc.
• Identification and selection of Joint Venture Partners
• Advising on suitable legal and tax structure
• Drafting Joint Venture Agreement
• Accounting and tax support
• Statutory registration and regulatory compliances