© 2010 Bloomberg Finance L.P. All rights reserved. Originally published by Bloomberg Finance L.P in the Vol. 3, No. 3 edition ofthe Bloomberg Law Reports
Asia Pacific Law. Reprinted with permission. The views expressed herein are those of the authorsand do not represent those of Bloomberg Finance L.P. Bloomberg Law Reports® is a registered trademark and service mark ofBloomberg Finance L.P.The discussions set forth in this report are for informational purposes only. They do not take into account the qualifications,exceptions and other considerations that may be relevant to particular situations. These discussions should not be construed aslegal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Any tax informationcontained in this report is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the UnitedStates Internal Revenue Code. The opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entitiesdo not take responsibility for the content contained in this report and do not make any representation or warranty as to itscompleteness or accuracy.
Indian partner confirming the completeness of the disclosed information and documents,and that no material data has been withheld.
D. Drafting a Detailed IJV Agreement
At the outset of an IJV's formation, the parties must also identify clear and commonobjectives, as well as the structure and the form of the IJV. Indian parties often believe thatas circumstances change, the legal contract can easily be amended. Moreover, Indianparties often prefer contractual provisions which delay difficult decision-making by allowingthe parties to negotiate in good faith at the time of occurrence of a foreseeable event. Toavoid blowing up the deal, foreign firms often agree to such provisions. They are keen tostart the IJV relationship as soon as possible and often put thorny issues on a delayed timefuse in the hope that better relations in the future will help resolve these issues in a moreamicable manner. To avoid this "ongoing" nature of negotiations, it is important that the IJVdocumentation addresses all foreseeable issues and leaves little to chance. If matters arenot agreed upon at the negotiation stage, it is likely that the parties will never agree onthose issues, and a dispute will arise in the future. The IJV agreement should include amongother things, the purpose of the IJV; the governing law and jurisdiction; ownershipinterests; the board structure; issues pertaining to management control; exit strategy; anddispute resolution mechanisms for when disputes arise.
E. Management Control
The level of equity participation inevitably influences the level of management control thefirms have in the decision-making process. In India, certain major decisions have to beapproved by a special majority of 75 percent or 90 percent of the shareholders by value.While cooperative decision-making where all the shareholders agree is optimum, majorityownership often allows for quick decision-making and thus avoids costly compromises ordeadlocks. It is important to note that at least 75 percent of the shareholders must approvea matter before it is passed as a special resolution. Such matters include capital increases,alteration in the memorandum and articles of the company, changing the registered officeaddress of the company from one state to another, change in the name of the company,buy-back of shares, proposed mergers and liquidation. Therefore, a minority shareholderwith more than 25 percent voting rights would have the ability to block special resolutions.