The JV parties agree to develop, for a finite time, a new entity and new assets by contributing equity.

They both exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares. In European law, the term 'joint-venture' is an elusive legal concept, better defined under the rules of company law. In France, the term 'joint venture' is variously translated as 'association d'entreprises', 'entreprise conjointe', 'co -entreprise' and 'entreprise commune'. But generally, the term societe anonyme loosely covers all foreign collaborations. In Germany,'joint venture' [1] is better represented as a 'combination of companies' (Konzern) On the other hand, when two or more persons come together to form atemporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers". The venture can be for one specific project only - when the JV is referred more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements,franchise and brand use agreements, management contracts, rental agreements, for one -time contracts. The JV is dissolved when that goal is reached. Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson and Penske Truck Leasing.

Contents
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1 The Joint-Venture concept o 1.1 Strategic reasons of one partner o 1.2 Downsides of a JV o 1.3 JVs and game theory 2 Finding the JV idea or partners 3 Formulating the JV 4 Selecting the partner 5 Feasibility study 6 Incorporation of the company 7 Shareholders' agreement 8 Joint venture laws of China o 8.1 Equity JVs o 8.2 Co-operative joint ventures o 8.3 Wholly Foreign Owned Enterprises (WFOEs) o 8.4 Foreign Investment Companies Limited By Shares (FICLBS) o 8.5 Investment Companies by Foreign Investors (ICFI) 9 Joint-Ventures in India o 9.1 Introduction

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9.2 Li li ti of poli 9.3 Automati li i and admini t d li nsing 9.4 Joint venture companies 9.5 Royalty payments and capitali ation 9.6 Legal system in t e country 9.7 Articles of Association 10 Dissolution 11 See also 12 References 13 External links
o o o o o o

[edi ] Te Joi-Venture concept

A JV on a continuing basis is t e normal business undertaking. It is similar to a business partnership with t wo differences: the first a partnership generally involves an ongoing, long -term business relationship, whereas an equity -based JV compri ses a single business activity. Second, all the partners have to agree to dissolve the partnership whereas a finite time has to lapse before it comes to an end (or is closed by the Court due to a dispute). The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, a limited liability enterprise, a partnership or other legal structure, depending on a number of considerations such as tax and tort liability. JVs are normally formed both inside one's own country and bet wee n firms belonging to different countries. JVs are usually formed in order to combine strengths or to bypass legal restrictions within a country; for example an insurance company cannot market its pol icies through a banking company. Some JVs are also formed because the law of a country allows dispute settlement, should it occur, in a third country. They are also formed to mini mi e business,tax and political risks. The JV is an alternative to the parent -subsidiary business partnership in emerging countries, d iscouraged, on account of (a) ignoring national objectives (b) slow -growth (c) parental control of funds and (d) disallowing competition. JVs can be in the manufacture of goods, services, travel space, banking, insurance, web -hosting business, etc. Today, the term 'JV' applies to more occasions than the choice of JV partners; for example, an individual normally cannot legally ca rry out business without finding a national partner to form a JV as in many Arab countries [2] where it is mentioned that there are over 500 Indian JVs in Saudi Arabia. Also, the JV may be an easier first -step to franchising, as McDonald's and other fast foods found out in China in the early difficult stage of development. Other reasons for forming a JV are:

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reducing 'entry' risks by using the local partner's assets inadequate knowledge of local institutional or legal environment access to loc al borrowi ng powers perception that the goodwill of the local partner is carried forward in strategic sectors, the county's laws may not permit foreign nationals to operate alone access to local resources through participation of national partner influence of local partners on government officials or 'compulsory' requisite (see China coverage below) access by one partner to foreign technology or expertise, often a key consideration of local parties (or through government incentives for the mechani sm) again, through government incentives, job and skill growt h through foreign invest ment, and incoming foreign exchange and invest ment.

[edit] Strategic reas ons of one partner There may be strategic interests of one partner's alone:

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adding 'clout ' (the influence of the other partner) to the enterprise build on company's strengths

economies of (international) scale and advantages of si e ('industrial hubs') 'globali e' without si e economies of scale (e.g.Indian and Israeli pharmaceutical industries)

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influencing structural evolution of the industry pre-empting competition defensive response to blurring industry boundaries speed to market market diversification pathways into R&D out sourcing

JVs are formed by the parties entering into an agreement that sp ecifies their mutual responsibilities and goals in an 'adventure. The JV partners can usually form the capital of the company through injections of cash alone or cash together with assets such as 't echnology' or land and buildings. Subsequent to its format ion the JV can raise debt for additional capital. A written contract is crucial for legal provisions. All JVs also involve certain rights and duties. Each partner to the JV has a fiduciary responsibility, even to act on someone s behalf, subordinating one' s personal interests to those of the other person or that of the sleeping partner. Upon its incorporation (see later) it becomes a company in most places, or a corporation (in the US). [edit] Downsides of a JV Some of the downsides of a joint venture may be:
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differing philosophies governing expectations and objectives of the JV partners an imbalance in the level of invest ment and expertise brought to the JV by the two parent organi ations inadequate identification, support, and compensatio n of senior leadership and management teams or conflicting corporate cultures and operational styles of the JV partners

A JV can terminate at a time specified in the contract, upon the death of an active member (unusual) or if a court so decides in a dispu te taken to it. Joint ventures have existed for many years in the US, from their usage in the railroad industry (one party control s the sourc es of oil and the other party the rights of ferrying it) and even to manufacturing and services. In the financial s ervices industry JVs were widely employed for marketing products or services that one of the parties, which acting alone, would have been legally prohibited from doing so. [4]

[edit] JVs and game theory

JVs may also be formed by companies on the 'game theory' that is grounded on the perception that of t he many possible moves 'on the chessboard', a competitor cannot properly guess the motive of the JV [5].

[edit] Finding the JV idea or partners

In the era of the Int ernet, finding opportunities for exploiting an idea is si eable together with remote, or advertised, communicating. There are also the blogging networks as well the social networking sites and search engines. There are also other venues to find a JV partner such as seminars, exhibitions, directories, websites such as http://www.clickbank.com/index.ht ml and the plain newspaper advertising of opportunities. One should not forget websit es which have become prosperous like eBay and Amazon.com, Wikipedia, Youtube to name the most obvious. Forming JVs with distributor and marketing agencies is possible in this flat world to market a product. But finding an entrepreneur for a JV is another task! Nonetheless, there are risk-takers- Venture capitalists, angel investors and venture managers (See Carried Interest [6] - especially in the high-t ech industries like IC chips or biotechnology. Although they typically exit once an idea or an opportunity proves itself, there are watchful funds and investors who could go in for a JV.

Joint ventures have also become more prominent in the world of alternative invest ments since the financial crisis began in 2007. In an Opalesque.TV video, Tim Krochuk of hedge fund GRT Capital Partners describes how hedge funds have begun teaming up with traditional long-only asset managers in joint ventures to provide alternative capabilities to existing traditional asset management firms. The emergence of these joint ventures continues the trend of alt ernative invest ments becoming a larger piece of traditional portfolios.

[edit] Formulating the JV

Formulating the JV is a series of steps, one which needs a lot of work and yet, at the same time, precision. One can here only underline the steps or information that will be needed by the JV candidate. They are [7]
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the objectives, structure and projected form of the joint venture, including the amount of investment and financing arrangements and debt the JV(s) products , their technical description and usage alternate production technologies estimat ed cost of equipment estimat ed product price(s) costing market analysis for the product, inside and outside the territory analysis of competition projected sales and methods of distribution details of offered site, including output projections, transport and warehousing, testing and quality control, by-products and waste;- supply, utility, and transport requirements; estimat ed technology transfer costs foreign exchange projections ( where applicable) staff requirements and training financial projections environmental impact social benefit

[edit] Selecting the partner

While the following offers some insight to the process of joining up with a committed partner to form a JV, it is often difficult to determine whether the commit ments come from a known and distinguishable party or an intermediary. This is particularly so when the language barrier exists and one is unfamiliar with local customs, especially in approaches to Government, often the deciding body for the formation of a JV or disput e settlement. The ideal process of selecting a JV partner emerges from:
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screening of prospective partners short listing a set of prospective partners and some sort of ranking due diligence - checking the credentials of the other party availability of appreciated or depreciated property contributed to the joint venture the most appropriate structure and invitation/bid foreign investor buying an interest in a local company

Companies are also called JVs in cases where there are dominant partners together with participation of the public. There may also be cases where the public shareholding is substantial but the founding partners retain their identity. These companies may be 'public' or 'private' companies. It would be out of place to describe them, except to say there are many in India. Further consideration relates to starting an new legal entity ground up. Such an enterprise is sometimes called 'an incorporated JV', one 'packaged' with technology contracts (knowhow,patents,trademarks and copyright), technical services and assisted-supply arrangements. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, f or 'one-time' contracts, e.g., for construction projects. They dissolve the JV when that goal is reached.

[edit] Feasibility study

A nascent JV project outlines:
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the partners the objectives and structure of the JV invest ment and financing arrangements product(s)and description and usage, output production technology equipment required and costs technology transfer costs cost-benefit analysis market analysis analysis of competition details of the site transport and warehousing by-products and waste supply, utility, and transport requirements foreign exchange projections staff requirements and training

Its feasibility, besides its profitability,is assessed (in t erms of Government control over the JV) by considering it, along with the Articles which will regulate it, by its strength and weakness factors (for the economy or the country) in aspects as:
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the quality of the technology - its appropriateness to the national infrastructure, exports, etc value to national economy and other contributions (i.e.labor intensity, environment factors, utility usage, "greeness" of the technology), waste-treat ment and disposal capability of recipient to absorb the technology cost of the technology and competitiveness supporting strengths (trademarks, patents, know-how,copyrights in case of IT) limits imposed (by its supplier) on the use or non-use of the technology.

[edit] Incorporation of the company

A JV can be brought about in the following major ways:
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Foreign investor buying an int erest in a local company Local firm acquiring an interest in an existing foreign firm Both the foreign and local entrepreneurs jointly forming a new enterprise Together with public capital and/or bank debt

In the U.K and India - and in many Common Law countries - a joint-venture(or else a company formed by a group of individuals)must file with the appropriate authority the Memorandum of Association. It is a statutory document which informs the outside public of its existence. It may be viewed by the public at the office in which it is filed. A sample can be seen at http://upload.wikimedia.org/wikipedia/meta/5/5f/Wikimedia_UK__Memorandum_of_Association.pdf. Together with the Articles of Association, it forms the 'constitution' of a company in these countries. The Articles of Association regulat e the int eraction between shareholders and the Directors of a company and can be a lengthy document of up to 700000 + pages. It deals with the powers relegated by the stockholders to the Directors and those withheld by them, requiring the passing of Ordinary resolutions, Special resolutions and the holding of Extraordinary General Meetings to bring the Directors' decision to bear. A Certificat e of Incorporation[8] or the Articles of Incorporation ( see sample at [9] ) is a document required to form a corporation in the US ( in actuality, the State where it is incorporated) and in countries following the practice. In the US, the 'constitution' is a single document. The Articles of Incorporation is again a regulation of the Directors by the stockholders in a company. By its formation the JV becomes a new entity with the implication:
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that it is officially separate from its Founders, who might otherwise be giant corporations, even amongst the emerging countries the JV can contract in its own name, acquire rights (such as the right to buy new companies), and it has a separate liability from that of its founders, except for invested capital it can sue (and be sued) in courts in defense or its pursuance of its objectives.

On the receipt of the Certificate of Incorporation a company can commence its business.

[edit] Shareholders' agreement

This is a legal area and is fraught with difficulty as the laws of countries differ, particularly on the enforceability of 'heads of' or shareholder agreements. For some legal reasons it may be called a Memorandum of Understanding. It is done in parallel with other activities in forming a JV. Though dealt with briefly in shareholders agreement in Wikipedia, (also see samples in [10],[11]) some issues must be dealt with here as a preamble to the discussion that follows. There are also many issues which are not in the Articles when a company starts up or

never ever present. Also, a JV may elect to stay as a JV alone in a quasi partnership to avoid any nonessential disclosure to the Government or the public. Some of the issues in a shareholders' agreement are:
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Valuation of intellectual rights, say,the valuations of the IPR of one partner and ,say, the real estate of the other the control of the Company either by the number of Directors or its "funding" The number of directors and the rights of the founders to their appoint Directors which shows as to wether a shareholder dominat es or shares equality. management decisions - whether the board manages or a founder transferability of shares - assignment rights of the founders to other members of the company dividend policy - percentage of profits to be declared when there is profit winding up - the conditions,notice to members confidentiality of know-how and founders' agreement and penalties for disclosure first right of refusal - purchase rights and counter-bid by a founder.

There are many features which have to be incorporated into the Shareholders Agreement which is quite private to the parties as they start off. Normally, it requires no submission to any authority. The other basic document which must be articulated is the Articles which is a published document and known to members. This repeats the Shareholders Agreement as to the number of Directors each founder can appoint to the (see Board of Directors). Whether the Board controls or the Founders. The taking of decisions by simple majority of those present or a 51% or 75% majority with all Directors present (their Alternates/proxy); the deployment of funds of the firm; ext ent of debt; the proportion of profit that can be declared as dividends; etc. Also significant is what will happen if the firm is dissolved; one of the partner dies. Also, the first right of refusal if the firm is sold, sometimes its puts and calls. Often the most successful JVs are those with 50:50 partnership with each party having the same number of Directors but rotating control over the firm, or rights to appoint the Chairperson and Vice-chair of the Company. Sometimes a party may give a separate trusted person to vote in its place proxy vote of the Founder at Board Meetings. (See also [12] ) Recently, in a major case the Indian Supreme Court has held that Memorandums of Understanding (whose details are not in the Articles of Association) are "unconstitutional" giving more transparency to undertakings.

[edit] Joint venture laws of hina

It is interesting to study the JV laws of China because they are of recent vintage and because such a unique law exists. According to a report of the United Nations Conference on Trade and Development 2003, China was the recipient of US$ 53.5 billion in direct foreign invest ment, making it the

worlds largest recipient of direct foreign invest ment for the first time, to exceed the USA. Also, it approved the establishment of near 500,000 foreign invest ment enterprises.[13]. The US had 45000 projects ( by 2004) with an in-place invest ment of over 48 billion [14] Until 1949, no guidelines existed on how foreign investment was to be handled due to the restrictive nature of China toward foreign investors. Since Mao Zedong initiatives in foreign trade began to be applied, and Law applicable to foreign direct invest ment was made clear in 1979, The first Sino-foreign equity venture took place in 2001 .[15] The corpus of the law has improved since then. Companies with foreign partners can carry out manufacturing and sales operations in China and can sell through their own sales network. Foreign-Sino Companies have export rights which are not available to wholly-Chinese companies as China desires to import foreign technology by encouraging JVs and the latest technologies. Under Chinese law, foreign enterprises are divided into several basic categories. Of these five will be described or mentioned here: three relate to industry and services and two as vehicles for foreign invest ment. They are the Sino-Foreign Equity Joint Ventures EJVs) ,Sino-Foreign Co-operative Joint Ventures (CJVs), the Law pertaining to Wholly Foreign-Owned Enterprises (WFOE) (although they do not s trictly belong to Joint Ventures) and the Invest ment Laws pertaining to foreign invest ment companies limit ed by shares (FICLBS) and Invest ment Companies through Foreign Investors (ICFI). [edit] Equity JVs The EJV Law is between a Chinese partner and a foreign company. It is incorporated in both Chinese (official) and in English (with equal validity), with limit ed liability. Prior to Chinas entry into WTO and thus the WFOEs EJVs predominated. In the EJV mode, the partners share profits, losses and risk in equal proportion to their respective contributions to the ventures registered capital. These escalate upwardly in the same proportion as the increase in registered capital. The JV contract accompanied by the Articles of Association for the EJV are the two most fundamental legal documents of the project. The Articles mirror many of the provisions of the JV contract. In case of conflict the JV document has precedence These documents are prepared at the same time as the feasibility report. There are also the ancillary documents (termed "offsets" in the US) covering know-how and trade-marks and supply of equipment agreements. The minimum equity is prescribed for invest ment (truncated) [16] (also see [17] : Where the foreign equity and debt levels are:
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less than US$3million, equity must constitute 70% of the invest ment; more than US$3 million, but less than US$10 million, equity must constitut e at least 50% of the invest ment; more than US$10 million but less than US$30 million, 40% must be equity; and more than US$30 million, 33% of the invest ment must be equity.

There are also int ermediary levels. The foreign invest ment in the total project must be at least 25%. No minimum invest ment is set for the Chinese partner. The timing of investments must be mentioned in the Agreement and failure to invest in the indicated time, draws a penalty. [edit] o-operative joint ventures Co-operative Joint Ventures (CJVs) [18] are permitted under the Sino-Foreign Co-operative Joint Ventures. Co-operative Enterprises are also called Contractual Operative Ent erprises. The CJVs may have a limited structure or unlimited therefore, there are two versions. The limit ed liability version is similar to the EJVs in status of permissions - the foreign investor provides the majority of funds and technology and the Chinese party provides land, buildings, equipment, etc. However, there are no minimum limits on the foreign partner which allows him to be a minority shareholder. The other format of the CJV is similar to a partnership where the parties jointly incur unlimit ed liability for the debts of the enterprise with no separate legal person being created. In both the cases, the status of the formed enterprise is that of a legal Chinese person which can hire labor directly as, for example, a Chinese national contactor. The minimum of the capital is registered at various levels of invest ment. Other differences from the EJV are to be noted:
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A Co-operative JV does not have to be a legal entity. The partners in a CJV are allowed to share profit on an agreed basis, not necessarily in proportion to capital contribution . This proportion also determines the control and the risks of the enterprise in the same proportion. it may be possible to operate in a CJV in a restricted area a CJV could allow negotiated levels of management and financial control, as well as met hods of recourse associated with equipment leases and service contracts. In an EJV management control is through allocation of Board seats [19]. during the term of the venture, the foreign participant can recover his invest ment, provided the contract prescribes that and all fixed assets will become the property of the Chinese participant on termination of the JV. foreign partners can often obtain the desired level of control by negotiating management, voting, and staffing rights into a CJV's Articles; since control does not have to be allocated according to equity stakes.

Convenience and flexibility are the characteristics of this type of invest ment. It is therefore easier to find co-operative partners and to reach an agreement. With changes in the Law, it becomes possible to merge with a Chinese company for a quick start. A foreign investor does not need to set up a new corporation in China. He uses the Chinese partners business license, under a contractual arrangement. Under the CJV, however, the land stays in the possession of the Chinese partner There is another advantage: the percentage of the CJV owned by each partner can change throughout the JVs life, giving the option tot the foreign investor, by holding higher equity,

obtains a faster rate of return with the concurrent wish of the Chinese partner of a later larger role of maintaining long term control The parties in any of the ventures, EJV, CJV or WFOE prepare a feasibility study outlined above. It is a non-binding document - the parties are still free to choose not to proceed with the project. The feasibility study must cover the fundamental technical and commercial aspects of the project before the parties can proceed to formalize the necessary legal documentation. The study must contain details referred to earlier under Feasibility Study. [20] (submissions by the Chinese partner). [edit] Wholly Foreign Owned Enterprises (WFOEs) The basic Law of the PRC Concerning Enterprises with Sole Foreign Invest ment controls WFOEs. Chinas entry into the World Trade Organization around 2001 has had profound effect on foreign invest ment. Not being a JV, they are only considered here only in comparison or contrast. To implement WTO commit ments, China publishes from time to time updated versions of {| class="wikitable" |-its Catalogs for the Guidance of Invest ments (affecting all ventures) the areas in which invest ment which is prohibit ed, encouraged and restrict ed. All foreign invest ments which are absent in the list are permitted. The WFOE is a Chinese legal person and has to obey all Chinese laws. As such, it is allowed to ent er into contracts with appropriate government authorities to acquire land use rights, rent buildings, and receive utility services. In this it is more similar to a CJV than an EJV. WFOEs are expected by PRC to use the most modern technologies and to export at least 50% of their production, with all of the invest ment is to be wholly provided by the foreign investor and the ent erprise is within his total control. WFOEs are typically limited liability enterprises (like with EJVs) but the liability of the Directors, Managers, Advisers, and Suppliers depends on the rules which govern the Depart ments or Ministries which control product liability, worker safety or environmental protection. An advantage the WFOE enjoys over its alternat es is the prot ection to its know-how but a principal disadvantage is absence of an interested and influential Chinese party. As of the 3rd Quarter 2004 the WFOEs had replaced EJVs and CJVs as follows [21] : Distribution Analysis of JV in Industry - PRC Type JV 2000 2001 2002 2003 2004 (3Qr) WFOE 46.9 50.3 60.2 62.4 66.8 EJV,% 35.8 34.7 20.4 29.6 26.9 CJV,% 15.9 12.9 9.6 7.2 5.2 Misc JV* 1.4 2.1 1.8 1.8 1.1 CJVs (No.)** 1735 1589 1595 1547 996

(*)=Financial Ventures by EJVs/CJVs (**)=Approved JVs [edit] Foreign Investment ompanies Limited By Shares (FI LBS) These enterprises are formed under the Sino-Foreign Invest ment Act . The capital is composed of value of stock in exchange for the value of the property given to the enterprise. The liability of the shareholders, including debt, is equal to the amount of shares purchased by each partner. The registered capital of the company the share of the paid-in capital. The minimum amount of the registered capital of the company should be RMB 30 million. These companies can be listed on the only two PRC Stock Exchanges the Shangri and Shenzhen Stock Exchanges. Shares of two types are permitt ed on these Exchanges Types A and Type B shares. Type A are only to be used by Chinese nationals and can be traded only in RMB. Type B shares are denominated in Remembi but can be traded in foreign exchange and by Chinese nationals having foreign exchange. Further, State enterprises which have been approved for corporatization can trade in Hong Kong in H shares and in NYSE exchanges. A shares are issued to and traded by Chinese nationals. They are issued and traded in Renminbi. B shares are denominat ed in Renminbi but are traded in foreign currency. From March 2001, in addition to foreign investors, Chinese nationals with foreign currency can also trade B shares. [edit] Investment ompanies by Foreign Investors (I FI) Brief coverage is provided. Invest ment Companies are those established in China by sole foreign-funded business or jointly with Chinese partners who engage in direct invest ment. It has to be incorporated as a company with limited liability. The total amount of the investor's assets during the year preceding the application to do business in China has to be no less than US $ 400 million within the territory of China. The paid-in capital contribution has to exceed $ 10 million. Furthermore, more than 3 project proposals of the investor's intended invest ment projects must have been approved. The shares subscribed and held by foreign Invest ment Companies by Foreign Investors (ICFI) should be 25%. The invest ment firm can be established as an EJV.

[edit] Joint-Ventures in India

[edit] Introduction Indias has an open philosophy on capital markets and it closely parallels its English peers in operation. The Bombay Stock Exchange (BSE) has close to 5000 listed shares, and trades in several thousand more, making it the largest stock exchange in the world [22]. The National Stock Exchange is the other exchange at present. English is one of the preferred languages of the market and its policies are first announced in English.

The Indian people are skilled and entrepreneurial by nature as evident in world markets but in India less than 1% of its billion population at present that is, only 11 million people representing 3% of households invest in the market.[23] People who work the market in other languages are adept in recognizing concepts in derivatives and futures and trade in them. India is one of three countries that has supercomputers, one of six that has sat ellite launching facilities and has over 100 Fortune 500 companies doing R&D in the country.[24] India does not restrict the repatriation of invest ments, dividends, profits and if need be, the principal ,through the single autonomous entity, the Reserve Bank of India (RBI). The Indian currency the Rupee is 100% convertible for earnings at free market rates. Indias new policies (described below) have resulted in aggregate foreign invest ment flowing into India increasing from US$103 million in 1990 -91 to US$61.8 billion in 20072008. [25],[26]

[edit] Liberalization of policy

Indias basic outlines of industrial development were framed by Pandit Jawaharlal Nehru in 1956 making the private sector a participant in development, but giving the public sector a dominant position.[27] However, by the early 90s the situation in the world economies turned: Japan entered a phase of stagnancy of growth, the pace of the Asian tigers slowed, as did the European economy. But, also, the countrys balance of payments crisis. To counteract these effects a new policy was born in July 1991, the reformed New Industrial Policy (NIP) [28] . It and later modifications (further liberalization) streamlines procedures, deregulated industrial licensing, and vastly expanded the role for the private sector, while shrinking the Public Sector. Also, anti -trust laws ( the Monopoly and Restrictive Practices Act) were trimmed and customs duties for industrial goods slashed. The restrictive Foreign Exchange Regulation Act (FERA) was replaced by the Foreign Exchange Management Act (FEMA). Industrial policy divided industry into three categories:
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those that would be reserved for public sector development, those under private enterprise with or without State participation, and those in which invest ment initiatives would ordinarily emanate from private entrepreneurs.

Only six industries are exclusively reserved for the Public Sector. Trading (except single-brand retailing), agricultural or plantation activities housing and real estate business (except development of townships), agriculture, atomic energy, gambling & betting, lottery business, and retail construction of residential/commercial premises, roads or bridges are on the negative list for foreign participation..

[edit] Automatic licensing and administered licensing

Indias invest ment policy as of April 2010 is presented at the site [29]. Briefly, India allows invest ments both through Foreign Direct Invest ment (FDI), meant for long-term controlling invest ments and Portfolio Invest ment - taking a position by buying shares of a company which is likely short-t erm capital market operation. Foreign Institutional Investors ("FIIs) from reputable institutions (like pension funds, mutual funds) may (and do) participate in the Indian capital markets. Industrial approvals are automatic ( RBI approval of invest ment) for most manufacturing industries with equity invest ment up to 51% foreign control and as of 1997 to 74% in certain select industries ( See the current policy highlighted above). For another 36 sectors there are varying limits without output restrictions. RBI approvals come within two weeks for the invested entity. Invest ments can flow to the country prior to approvals for such cases. Even in sectors limit ed to 51%, a higher level of control, up to 74%, is feasible if approach is made to the Foreign Invest ment Promotiomn Board (FIPB) thus, administered-licensing . Invest ments up to 100% are allowed in power generation, coal washeries, electronics, an Export Oriented Unit (EOU) in the EPZ's). NRI (Non-Resident Indians), PIO (People of Indian Origin), and OCBs (Overseas Commercial Bodies) have relaxed accommodation Industrial licensing of the 1951 policy is applicable to Annex II (not shown here) industries which revolve around certain key natural resources. It is administered through FIPB .

[edit] Joint venture companies

JV companies are the preferred form of corporate investment but there are no separat e laws for joint ventures. Companies which are incorporated in India are treated on par as domestic companies .
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The above two parties subscribe to the shares of the JV company in agreed proportion, in cash, and start a new business. Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash. Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

Private companies ( only about $2500 is the lower limit of capital, no upper limit) are allowed [30] in India together with and public companies, limited or not, likewise with partnerships. sole proprietorship too are allowed. However, the latter are reserved for NRIs. Through capital market operations foreign companies can transact on the two exchanges without prior permission of RBI but they cannot own more than 10 percent equity in paid-up capital of Indian enterprises, while aggregate foreign institutional invest ment (FII) in an enterprise is capped at 24 percent.

The establishment of wholly-owned subsidiaries (WOS) and project offices and branch offices, incorporated in India or not. Sometimes, it is understood, that Branches are started to test the market and get a its flavor. Equity transfer from residents to non-residents in mergers and acquisitions (M&A) is usually permitted under the automatic route. However, if the M&As are in sectors and activities requiring prior government permission (Appendix 1 of the Policy) then transfer can proceed only after permission [31] . Joint ventures with trading companies are allowed together with imports of secondhand plants and machinery. It is expect ed that in a JV, the foreign partner supplies technical collaboration and the pricing includes the foreign exchange component, while the Indian partner makes available the factory or building site and locally made machinery and product parts. Many JVs are formed as public limited companies (LLCs) because of the advantages of limited liability.[32]. JVs are expect ed in the nuclear industry following the NSG waivers for nuclear trade. The nuclear power industry has been witnessing several JVs. The country has set an imposing target of achieving an installed capacity of 20 GW by 2020 and 63 GW by 2030. The total size of the Indian nuclear power market will be around $40 billion by 2020 with a growth rate (AAGR) of 9.2% in installed nuclear capacity during 200820. The total invest ments made are to a tune of around $1.30 billion following the Indo-US nuclear deal in 2008 [33] . There is a group of industries reserved for the s mall scale sector wherein foreign invest ment cannot exceed 24% and if does then approval is necessary from the FIPB, and the unit loses its smallness and requires an industrial license [34] . There are many JVs. lying outside of this discussion Hindusthan Unilever-Unilever, SuzikiGovt. of India (Maruti Motors), Bharti Airteli-Singapore Telecom, ITC -Imperial Tobacco, P&G Home Products, Whirlpool, having financial participation with the financial institutions and the lay public which are monitored by SEBI (Securities and Exchange Board of India), also an autonomous body. This lies outside this discussion. Under the countrys laws, a public company must:
y y y y y y

Have at least seven shareholders Have at least three directors Obtain government approval for the appointment of its management. Have both a "trading certificate" and certificate of incorporation before commencing its business. Publish also a prospectus (or file a statement) before it can start transact business. Hold statutory meetings

There are several other provisions contained in the Companies Act 1956 which also need to be followed.

[edit] Royalty payments and capitalization

For the automatic route, RBI allows [35]: Lump sum payments not exceeding US$ 2 million.

Royalty payable is limited to 5 % for domestic sales and 8 % for exports, without any restriction on the duration of the royalty payments. The royalty limits are net of taxes and are calculated according to standard conditions. Payments are made through RBI. The royalty is calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc. Issue of equity shares against lump sum fees and royalty fees is permitted.. For exceeding this norm, the firm has to approach FPBI.

[edit] Legal system in the country

India is a common law country with a written cons titution, guarant eeing individual and property rights. There is a single hierarchy of courts. Arbitration can be in India or Int ernational Commercial Arbitration. The country has recently enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration ("Model Law [36]. All agreements are under Indian laws.

[edit] Articles of Association

Introduction The Articles of Association determine how a company is run. It is a set of 'bye-laws' which form the 'constitution' of the Company. It is oft en required by Law to be part of the Joint Venture agreement . Some clauses relating to the following may be absent. Where this the case, it is assumed that the provisions as laid out in the in Company Law apply. The Articles can cover a medley of topics, mot all of which is required in a country's law. Although all will not be discussed, it can cover:
y y y y y y y y

Valuation of intellectual rights, say,the valuations of the IPR of one partner and,say,the real estate of the other The appoint ments of directors - which shows whether a shareholder dominates or shares equality. directors meetings - the quorum and percentage of vote management decisions - whether the board manages or a founder transferability of shares - assignment rights of the founders or other members of the company special voting rights of a Chairman,and mode of election dividend policy - percentage of profits to be declared when there is profit winding up - the conditions,notice to members

y y

confidentiality of know-how and founders' agreement and penalties for disclosure first right of refusal - purchase rights and counter-bid by a founder.

Some agreements mention that the Articles of Association as given in Company Law apply to the agreement except where specifically differing; and others say, explicitly, that they do not bind that the agreement and that it contains all legally-acceptable bye-laws. The typical Articles in an Indian Public Sector Company are given in [37]. A Company is essentially run by the shareholders, but for convenience, and day-to-day working, by the Directors. The shareholders elect the directors at the Annual General Meeting (AGM), which is statutory. Thus, the Board of Directors (BOD). The number of directors depends on the size of the Company and statutory requirements. The Chairperson is generally a well-known outsider but he /she may be a working Executive, typical of an American enterprise. The Directors may or may not be employees of the Company. There are usually some major shareholders who form the company. Each usually has the right to nominate, without objection of the other, certain number of directors who become nominees for the election by the shareholder body at the AGM. The Treasurer and Chairperson is usually the privilege of one of the JV partners (which nomination can be shared). Shareholders can also elect Independent directors - persons not associat ed with the promot ers of the company. person is generally a well-known outsider but he /she may be a working Executive. The Directors may or may not be employees Once elect ed, the BOD manages the Company. The shareholders play no part till the next AGM. or EGM. The Objectives and the purpose of the Company are det ermined in advance by the shareholders and the Memorandum of Association (MOA) - which denotes the name of the Company, its Head- Office, its Directors and the main purposes of the Company - for public access. It cannot be changed except at an AGM or Extraordinary General Meeting (EGM) and statutory allowance. The MOA is generally filed with a 'Registrar of Companies' who is an appointee of the Government. For their assurance the shareholders, an Auditor is elect ed at each AGM. The MOA is currently dispensed with in many countries. The Board meets several times each year. At each meeting there is an 'agenda' before it. A minimum number of Directors (a quorum) is required to meet. This is either det ermined by the 'bye-laws' or is statutory. It is Presided by the Chairperson or in his absence, by the ViceChair. The Directors survey their area of responsibility. They may det ermine to make a 'Resolution' at the next AGM or if it is an urgent matter, at an EGM. The Directors who are the electives of one major shareholder, may present his/her view but this is not necessarily so - they may have to view the Objectives of the Company and competitive position. The Chair may have to 'break' the vote if there is a 'tie'. At the AGM, the various Resolutions are put to vote. The AGM is called with a notice sent to all shareholders. A certain quorum of shareholders are required to meet. If the quorum requirement is not met , it is canceled and another Meeting called. If it at that too a quorum is not met, a Third Meeting is called and the members present, unlimited by the quorum, take all decisions.

Decisions are taken by a show of hands; The Chair is always present. Where decisions are made by a show of hands is challenged, it is done, by a count of votes. Voting can be taken in person or by marking the paper sent by the Company. A person who is not a shareholder of the Company can vote if he/she has the 'proxy', an authorization from the shareholder. Each share carries the votes assigned to it. Some vot es maybe for the decision, others not. Two types of decision known as the Ordinary Resolution and the other a Special Resolution can be tabled at a Director's Meeting: The Ordinary Resolution requires the endorsement by a majority vote, sometimes easily met by partners' vote. The Special Resolution requires 60,70 or 80% of the vote as stipulated by the 'constitution' or the very same bye-laws of the Company. Shareholders other than partners are required to vot e. The matters which require the Ordinary and Special Resolution to be passed are enumerat ed. A typical Articles of Association is shown in the Nestle S.A. or Nestle Ltd [38].

[edit] Dissolution
The JV is not a permanent structure. It can be dissolved when:
y y y y y y y

Aims of original venture met Aims of original venture not met Either or both parties develop new goals Either or both parties no longer agree with joint venture aims Time agreed for joint venture has expired Legal or financial issues Evolving market conditions mean that joint venture is no longer appropriate or relevant