Joint Venture Agreements in India: Structuring Successful Partnerships
A Joint Venture (JV) Agreement governs the collaboration between two or more parties for a specific business purpose, combining complementary strengths—capital, technology, market access, or expertise. India’s economic growth has attracted numerous JVs: Maruti-Suzuki, Tata-Starbucks, and Mahindra-Ford are landmark examples of how JVs can create value in the Indian market.
JVs can be structured as equity JVs (creating a new company), LLPs, or contractual arrangements. The choice depends on liability preferences, tax efficiency, regulatory requirements (especially FDI norms), and exit flexibility.
JV Structures Available Under Indian Law
Equity JV (Private Limited Company)
Most common for significant investments. Creates a separate legal entity with limited liability. Governed by Companies Act 2013 and SHA. Suitable when FDI is involved (many sectors require Indian company structure). Tax rate: 25% for companies with turnover up to ₹400 crores.
LLP Joint Venture
Flexible structure with lower compliance. Taxed at 30% flat rate. Limited liability for partners. No mandatory audit if turnover below ₹40 lakhs and contribution below ₹25 lakhs. Note: 100% FDI allowed in LLPs only in sectors with automatic route and no FDI conditions.
Deadlock Resolution Mechanisms
Deadlocks are the biggest risk in JVs, especially 50:50 structures. Indian courts cannot easily resolve commercial disagreements, so the agreement must provide clear mechanisms:
Escalation
Refer to senior management/CEOs of parent companies
Mediation
Neutral mediator facilitates resolution
Shotgun / Russian Roulette
One party names a price; other must buy or sell at that price
Winding Up
Last resort—dissolve the JV and distribute assets
Key Takeaways
- ✓ Avoid 50:50 JVs if possible—include robust deadlock resolution if unavoidable
- ✓ Address FDI compliance upfront for JVs involving foreign partners
- ✓ Define non-compete scope carefully to protect JV without restraining parents
- ✓ Include put/call options for exit after a defined period (typically 5–7 years)
- ✓ File FC-GPR within 30 days if foreign investment is involved
Frequently Asked Questions
Is a JV different from a subsidiary?
Yes. A subsidiary has a single controlling parent (over 50% ownership). A JV is co-owned by two or more independent parties, each contributing resources and sharing control, risks, and profits.
What happens if a JV partner wants to exit?
Exit mechanisms defined in the JV agreement apply—typically put/call options, ROFR, tag-along/drag-along rights, or strategic sale. Valuation is usually by independent valuer at fair market value.