Despite global uncertainties India remains a go-to destination for investment and deal activity. Over the years, the government has introduced several reforms to ease foreign direct investment (FDI), simplify regulatory approvals and create a more conducive business environment. As a result, India has witnessed a steady increase in FDI inflows across diverse sectors, making it an attractive market for global investors.

One of the most common routes for foreign investors to enter the Indian market is through joint ventures (JVs). A joint venture is a business arrangement where two or more parties come together to pool resources and expertise for a common commercial objective. For foreign companies, partnering with an Indian entity provides access to the local market, helps navigate regulations and offers established distribution networks, factors essential for successful market entry.

When considering a JV, it is crucial for foreign investors to carefully assess the appropriate structure and identify the form of JV that best aligns with their commercial goals.

Choosing the Right JV Partner

When structuring a JV, one of the most critical step is choosing the right partner. Before entering into a binding arrangement, investor should carefully evaluate potential partner’s reputation in the market, their financial standing, and past track record in collaborations. 

Equally important is the alignment of business goals. Investors should evaluate whether the partner shares a similar vision for growth, expansion and risk taking. A mismatch in goals at the outset can lead to conflicts and strain the partnership in the long run.

Structure of JV 

Once the right partner is identified, the next step is deciding on the forms of the JV. It is essential to choose a structure that aligns with the overall business strategy. Although there are several ways to structure a JV, the two most common forms are:

• Equity JVs; and 

• Contractual JVs.

Each has its own advantages and challenges, and the choice depends on the nature of the business, regulatory environment and commercial goal of the parties.

Equity JVs 

Equity JVs are the most common form of JVs in India, where a foreign investor can invest either by incorporating a separate joint venture company with the Indian partner or by investing in the share capital of an existing Indian Company. In the first scenario, the parties jointly incorporate a new company under the Companies Act 2013 and subscribe to its shares in agreed proportions. In the second scenario, the foreign investor buys into the share capital of an existing company, which may either be a subsidiary of the local Indian JV partner or the partner company itself. 

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