The Indian market has become the ultimate and the most profitable market for startups. Some of the most successful and well-known startups have started in the country. With India’s rank in the ease of doing business increasing to 77, this is a clear sign of a desirable business environment that had led to the introduction of several businesses and startups. But for startups to keep functioning and progressing there is a constant requirement capital that comes in the form of funding. This is where venture capital firms come into the picture. They assist the promising startups which have the potential to turn their small business into a large company by providing them the adequate funding.
A joint venture is defined as a business arrangement established by two or more companies. The purpose of the fulfillment of a common objective, for a project or to successfully complete a business activity. A Joint Venture Agreement made by two companies who come together for a common purpose or aim.
This is an important concept to understand. The reason behind the establishment of a joint venture varies from companies to companies. Let us look into some objectives of a joint venture capital.
To enter the foreign markets or emerging markets
To reduce risk involved with regards to large amounts of investment
To make optimal utilization of resources
To achieve economies of scale
Setting up a Joint venture company requires certain significant steps that must be appropriately followed by the individuals.
Selection of a joint venture partner
Selection of a type of joint venture
Obtain venture company license
Preparation and drafting of the joint venture agreement
Certain factors that fulfill the eligibility requirements for setting up a venture capital as per SEBI (Venture Capital Funds) Regulations, 1996 –
Memorandum of association
Sending an invitation to the public to subscribe to its securities is prohibited
The members of the company must not be involved in any litigation with regards to securities market
The Joint Venture registration process involves steps that must be followed in an accurate manner for a successful registration –
Incorporation of the company
Submission of Application Form A
Submission of documents along with Memorandum of Association and Articles of Association
An investment strategy must be created which includes all details regarding investment
Submission of declaration with necessary details
The board assesses the form along with the documents and approves it if all the conditions are met and are considered satisfactory
Once the board approves the application and the documents, the applicant pays the required fees
Lastly, the applicant is granted a joint venture license in Form B
A contract or an agreement is crucial for any company. It serves several benefits and helps the running of the business in an effective and efficient manner. The contents of a joint venture agreement must contain all the necessary details with regards to the company.
Document required as an important step are as mentioned below. The applicant must submit all documents as per the guidelines.
Name and details of the sponsor
Details of trustees
Details of investment manager
Declaration in respect of “Fit and Proper Person”
In this section, we will discuss about certain factors that separate joint venture companies from other companies –
Separate legal entity
The joint venture company is a separate legal entity that is distinct from its partners or owners. It has an identity of its own.
The joint venture comes to an end after the completion of the purpose for which the company establishment is undertaken.
Management of accounts
The accounts of the venture capital company are carried out by the parties or they hire an individual to maintain company accounts.
The co-venturers are the owners of the company. They have full ownership on the company.
Profit sharing ratio
The profits are shared amongst the co-venturers in a ratio that is agreed upon at the start of the company’s establishment.
The funds are arranged and invested into the company by the owners of the capital company.
A venture capital company can be started in several ways as per the requirements of the companies that are looking to form a joint venture.
Separate joint venture business
Contractual joint venture – This type does not necessarily demand an entity or a separate business setup, it is worked upon on the basis of an agreement.
Equity based joint venture – This type requires a business entity which is created before the business activities are undertaken.
It allows business growth and expansion in an efficient manner
They gain access to new and emerging markets as well as distribution networks
They gain better business opportunities
Efficient production of goods and services due to the use of better technology. The two partners involved in the business invest in technology which benefits the company
Introduction of innovative and creative products
Reduction of cost of production
A business cannot run for longer durations if it does not have sufficient funds. A joint venture company satisfies various capital requirements of startups and small businesses and proves to be profitable if they are launched with suitable guidelines. The company must follow all rules and regulations to ensure timely profits.