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.

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