Knowing something

`about

Joint Venture,
Licensing

and

Wholly owned
Subsidiary
By,

RESHMA T
Joint Venture
Joint Venture companies are the most preferred form of corporate entities for
Doing Business in India. There are no separate laws for joint ventures in India. The
companies incorporated in India, even with up to 100% foreign equity, are treated
the same as domestic companies. A Joint Venture may be any of the business
entities available in India. Selection of a good local partner is the key to the
success of any joint venture

A typical Joint Venture is where:

1. 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.
2. The above two parties subscribe to the shares of the joint venture company
in agreed proportion, in cash, and start a new business.
3. 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.

Some practical aspects of formation of joint venture companies in India and the
prerequisites which the parties should take into account are enumerated herein
after.

All the joint ventures in India require governmental approvals, if a foreign partner
or an NRI or PIO partner is involved. The approval can be obtained from either
from RBI or FIPB. In case, a joint venture is covered under automatic route, then
the approval of Reserve bank of India is required. In other special cases, not
covered under the automatic route, a special approval of FIPB is required.

A Joint Venture with a local partner represents a more extensive form of

participation in foreign markets than either exporting or licensing. The advantages
of this strategy include the sharing risk and the ability to combine different value of
chain strengths. One company might have in-depth knowledge of a local market,
an extensive distribution system, or access to low-cost labor or raw materials. Such
a company might link up with a foreign partner possessing considerable know-how
in the area of technology, manufacturing, and process applications. Companies that
lack sufficient capital resources might seek partners to jointly finance a project.
Finally, a joint venture may be the only way to enter a country or region if
government bid award practices routinely favor local companies or if laws prohibit
foreign control but permit joint ventures.
Licensing
Licensing can be defined as a contractual arrangement whereby one company (the
licensor) makes an asset available to another company (the licensee) in exchange
for royalties, license fees, or some other form of compensation. The licensed asset
may be a patent, trade secret, or company name. Licensing is a form of global
market entry and an expansion strategy with considerable appeal. A licensor may
grant permission to a licensee to distribute products under a trademark. With such a
license, the licensee may use the trademark without fear of a claim of trademark
infringement by the licensor.

The company may enter into an agreement with a firm in the importing country
whereby it permits the latter to manufacture goods in the former’s brand name in
exchange of royalty. Thus, the exporting company allows the company in the
importing country the use of its brand name, patent rights, trademarks, and
copyrights and provides the necessary know-how for it. In many cases, this is the
only way to overcome tariff barriers and import restrictions. There is practically no
investment on the part of the exporting country. Moreover, there is no risk of
nationalization. This is the best way for a company which wants to establish an
overseas presence with a minimum of investment and risk. It is a favored strategy
for small and medium sized companies.

Wholly Owned Subsidiary

Subsidiary means individual body under parent body. This Subsidiary or individual
body as per their own generates revenue. They give their own rent, salary to
employees, etc. But policies and trademark will be implemented from the Parent
body. There are no branches here. Only the certain percentage of the profit will be
given to the parent body.

A subsidiary, in business matters, is an entity that is controlled by a bigger and

more powerful entity. The controlled entity is called a company, corporation, or
limited liability company, and the controlling entity is called its parent (or the
parent company). The reason for this distinction is that a lone company cannot be a
subsidiary of any organization; only an entity representing a legal fiction as a
separate entity can be a subsidiary. While individuals have the capacity to act on
their own initiative, a business entity can only act through its directors, officers and
employees.
The most common way that control of a subsidiary is achieved is through the
ownership of shares in the subsidiary by the parent. These shares give the parent
the necessary votes to determine the composition of the board of the subsidiary and
so exercise control. This gives rise to the common presumption that 50% plus one
share is enough to create a subsidiary. There are, however, other ways that control
can come about and the exact rules both as to what control is needed and how it is
achieved can be complex (see below). A subsidiary may itself have subsidiaries,
and these, in turn, may have subsidiaries of their own. A parent and all its
subsidiaries together are called a group, although this term can also apply to
cooperating companies and their subsidiaries with varying degrees of shared
ownership.

Subsidiaries are separate, distinct legal entities for the purposes of taxation and
regulation. For this reason, they differ from divisions, which are businesses fully
integrated within the main company, and not legally or otherwise distinct from it.

Subsidiaries are a common feature of business life and most if not all major
businesses organize their operations in this way. Examples include holding
companies such as Berkshire Hathaway, Time Warner, or Citigroup as well as
more focused companies such as IBM, or Xerox Corporation. These, and others,
organize their businesses into national or functional subsidiaries, sometimes with
multiple levels of subsidiaries.