The litigation process is divided into four phases.

Stage One. The first stage involves the investigation and filing of the complaint. During this stage, the

attorney investigates the factual basis of the claim and legal theories of liability. The attorney may hire

investigators, expert witnesses and obtain documents that are necessary to evaluate and pursue the

claim. After the complaint is filed, the defendant files what is known as an "answer." The answer denies

the factual allegations stated in the complaint and denies any liability for the claim.

Stage Two. The second stage of the litigation process is known as discovery. Discovery allows both the

plaintiff and defendants to send written questions to the opposing party (called interrogatories) that

need to be answered under oath. It allows production of documents from the other side. It allows for

oral questions upon examination called a deposition. As a plaintiff, you and your lay and expert

witnesses (such as treating physicians) will be deposed. It allows the parties to subpoena third parties

who are not part of the lawsuit to obtain documents or testimony.

Stage Three. The third stage is known as pre-trial motions stage. During this stage, the parties bring

pre-trial motions in order to (a) have the case dismissed or the issues narrowed; (b) to obtain discovery

that was not allowed; (c) to establish the procedures to be used at trial

Stage Four. The fourth stage is the trial of the case and any appeals. During this phase, the parties

present their case to a judge or jury by way of live testimony and submission of exhibits. After hearing

the evidence from all sides and listening to the instructions of law given by the judge in the case, the

jury renders a verdict. There is a right to appeal from a verdict that can be exercised by either party.

The appeal process generally takes between a year and two years.

Litigation is a legal process where parties argue their case against each other through the

usage of discovery and court room procedures. Parties involved are called litigants. Each

party assembles its argument supported by findings and facts.

Parties involved are called litigants. Each party assembles its argument supported by findings and facts.

Parties exchange documents pursuing their interest. Litigation continues until the involved parties' find a
resolution or trial conclude. In the event a resolution is not attainable, parties will move forward to trial

seeking court judgment.

On its part, the court usually extends the process of litigation through alternative dispute resolutions. As

a first step, parties are advised to seek the assistance of a mediator (a neutral party trained

professionally to help in conflict resolution with non-binding powers). If mediation fails, the court can

accept the case directly or send it for arbitration (a neutral party with legal background who hold binding

powers).

After the arbitrator issues a ruling, parties can accept the ruling or file for formal hearing with the court.

Close to 91% of lawsuits end outside of the court room through mediation or arbitration (or mutual

agreement). In the trial phase, parties can ask for a jury trial or trial by a judge. Federal and state laws

limit the type of cases that can be resolved through a jury trial.

Once a decision had been reached, dissatisfied parties can file for an appeal, which takes longer time

than the initial trial. Throughout the whole process, the guidance of a qualified lawyer is a must.

Litigation can become expensive (depending on the legal question being pursuit, and the type and

amount of damages each party is seeking).

Depending on background and experience, lawyers structure an understanding of essential problems and

questions surrounding the case to formulate various answers for their clients. Also, lawyer's background

and ability to generate findings play a central role in promoting position of the client.
Foreclosure Defined. A foreclosure occurs when a property owner cannot make principal

and/or interest payments on his/her loan, typically leading to the property being seized and

sold.

1. General Stages of Foreclosure

The foreclosure process is not very difficult to understand. There are several stages during which the

homeowner has an opportunity to bring the loan current and avoid foreclosure. After about three to six

months of missed payments, the lender orders a trustee to record a Notice of Default (NOD). At the

County Recorder's Office. This puts the borrower on notice that he or she is facing foreclosure and starts

a reinstatement period that typically runs until five days before the home is auctioned off. If the default

isn't corrected (the loan must be brought current) within three months, a foreclosure sale date is

established. The homeowner will receive a Notice of Sale, and this notice will also be posted on the

property. In addition, the Notice of Sale is recorded at the County Recorder's Office in the county where

the property is located. Finally, this Notice of Sale is also published in newspapers local to the county in

question over a three-week period

2. Trustee Sale

The foreclosure Trustee Sale typically occurs on the steps of the county courthouse in which the

property is located. The time and location of this sale are designated in the Notice of Sale. At the

Trustee Sale, the property is auctioned in public to the highest bidder, who must pay the high bid price

in cash, typically with a deposit up front and the remainder within 24 hours. The winner of the auction

will then receive the trustee’s deed to the property.

3. Foreclosure Auction

At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually

equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees

associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be

purchased by the attorney conducting the sale, for the lender. If this occurs, and the opening bid is not

met, the property is deemed a REO or Real Estate Owned. This typically occurs because many of the

properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or

lender. When you purchase property at a foreclosure sale, all junior liens other than property taxes are

wiped out. Priority of liens is determined by the date of recording. When you purchase a REO aka. Bank

REO, you will typically receive the property with a clean title.
Note

The following is a generalized breakdown of the foreclosure process. If you're interested in finding out

about foreclosure laws in your state, please contact a lawyer for a consultation.

COMPETITION LAW IN MALAYSIA

June 2010 - Corporate & Commercial. Legal Developments by Raslan Loong.
More articles by this firm.

On 22 April 2010, Dewan Rakyat, Malaysia’s House of Representatives, passed the Competition Bill 2010 and
the Competition Commission Bill 2010. Broadly, the Competition Bill 2010 provides for laws prohibiting anti-
competitive agreements and abuse of dominance. Whereas the Competition Commission Bill 2010 deals with the
establishment of a competition commission to administer and enforce the approved Competition Act 2010 (“Act”).
This article provides an overview of the key provisions of the Competition Act.

The Act covers commercial activities including those transacted outside Malaysia which has an effect on
competition in Malaysia but excludes:

1. commercial activities governed by the Communications and Multimedia Act 1998 and Energy
Commission Act 2001 as these two legislations already have competition provisions within them and
arguably the regulation of these two sectors are better left managed within their respective industry; and
2.

3. any activity in exercise of governmental authority or conducted based on the principle of solidarity,
or where goods or services purchased are not part of an economic activity.

PROHIBITIONS

The Act prohibits any entity carrying on commercial activities relating to goods or services to :

1. have any horizontal or vertical agreements that have the object or effect of significantly preventing,
restricting or distorting competition; and
2.

3. engage, whether independently or collectively in any conduct which amounts to an abuse of a

dominant position i.e. a situation where an enterprise possesses significant power in a market which
enables it to adjust prices or outputs or trading terms without effective constraints from competitors.

The use of the word ‘significantly' should be noted as this suggests that there must be substantial impact in the
market before a violation will be found. The Act will regard a subsidiary and its parent company as a single
enterprise, if the subsidiary does not enjoy real autonomy in determining its actions on the market.

EXCLUSIONS AND RELIEFS

An enterprise may seek individual exemption for a particular agreement or block exemption for particular
categories of agreement and be relieved of its liability for anti-competitive agreement if it can establish that: (i)
there are significant technological, efficiency or social benefits; (ii) the benefits could not reasonably have been
provided without the agreement having the anti-competitive effect; (iii) the detrimental effect on competition is
proportionate to the benefits provided; and (iv) competition would not be eliminated completely.

ABUSE OF DOMINANT POSITION

The Competition Act contains an illustrative list of conducts which may constitute an abuse of dominant position
including:

1. directly or indirectly imposing unfair purchase or selling price or other unfair trading conditions on
any supplier or customer;
2.

3. limiting or controlling production, market outlets or market access, technical or technological

development, or investment to the prejudice of consumers;
4.

5. refusing to supply to a particular enterprise or group or category of enterprises;

6.

7. applying different conditions to equivalent transactions with other trading parties to an extent that
may:
8.

o discourage new market entry or expansion or investment by an existing competitor;

o

o force from the market or otherwise seriously damage an existing competitor which is no less
efficient than the enterprise in a dominant position; or
o

o harm competition in any market in which the dominant enterprise is participating or in any upstream
or down stream market;
o

1. making the conclusion of contract subject to acceptance by other parties of supplementary

conditions which by their nature or according to commercial usage have no connection with the subject
matter of the contract;
2.

3. any predatory behaviour towards competitors;

4.

5. buying up scarce supply of intermediate gods or resources required by a competitor, in

circumstances where the enterprise in a dominant position does not have a reasonable commercial
justification for buying up the intermediate goods or resources to meet it w own needs.
6.

The fact that the market share of an enterprise is above or below any particular level shall not in itself be
regarded as conclusive evidence as to whether that enterprise occupies or does not occupy a dominant position
in that market.

PENALTIES, INFRINGEMENT AND OFFENCES

The Competition Act draws a distinction between an infringement and an offence.

The potential fines for infringement that can be imposed is set at an amount not more than 10% of the worldwide
turnover for the enterprise over the period during which the infringement occurred. As there is no cap on the
application of fines to a time period, (unlike for instance, in Singapore, where it is limited to a three year period) or
restriction of fines to activities in the relevant markets, the fines can potentially be very large.

A corporation may be fine not more than RM5 million for the first offence and not more than RM10 million for the
second and subsequent offences in the case of corporation and an individual may be fined not more than RM1
million or jailed for not more than five years, or both for the first offence and not more than RM2 million or jailed
for not more than five years, or both for the second and subsequent offences. In addition, where a corporation
commits an offence, the officers assisting in or responsible for the management of the corporation shall be
deemed to have committed the offence unless he proves that the offence was committed without his knowledge
or consent and he had taken all reasonable precautions and exercised due diligence to prevent the commission
of the offence.

To encourage whistle blowing, the Competition Act provides for a leniency regime, much like most other
competition legislation. Essentially a maximum of 100% of any penalties which would be imposed will be reduced
if an enterprise admits to an infringement and provides information that significantly aids in the investigations and
finding of an infringement by another enterprise.

COMPETITION COMMISSION

The Competition Commission shall comprise a Chairman, four government representatives, one of whom shall
be a representative of the Minister of Domestic Trade, Cooperative and Consumerism and between three to five
other members who have experience and knowledge in business, industry and consumer protection. This
constitution of the Competition Commission suggests that the Government will have considerable influence in
determining whether an activity is anti-competitive or whether there is abusive conduct.

As with most commissions, in other countries, the Competition Commission has extensive powers to conduct
investigations, request for information, conduct searches and seizures, issue interim measures whilst
investigating. The Competition Commission must give written notice to each enterprise that may be directly
affected by the decision of its investigations.

IMPACT ON BUSINESS

The Competition Act is expected to be gazetted and implemented in 2011. Regardless of the exact date when the
competition laws will come into force, businesses operating in Malaysia should begin to take steps to ensure that
their business contracts and dealings comply with the provisions of the Act. They should start instituting practices
and procedures to ensure compliance with the provisions of the Act when structuring their business ventures,
using information acquired from competitors and dealing with upstream and downstream partners. In addition,
although the Act does not include a merger control regime, when undertaking mergers, businesses have to
ensure that post-merger, the merged company will not breach the provisions of the Act.
The Regulation of International Franchising
• NOVEMBER 2010
• FRANCHISE
MARK ABELL

Despite the best efforts of organisations such as Unidroit, there is no generally accepted way of
regulating franchising internationally. Twenty-nine different nations have franchise-specific laws, and
the lack of any common approach creates real challenges for companies seeking to franchise their
businesses internationally, and for their legal advisors. In addition, general commercial law can have a
substantial impact on franchising.

Mark Abell

Franchise Specific Laws

There are three different types of franchise regulation in these other jurisdictions, each with a distinct
purpose and characteristics. These are: anti-trust regulations; foreign trade and investment
regulations; and pure franchise regulations.

National franchise laws can be placed into these categories by reference not only to their substantive
content, but also their origins.

Anti-trust regulations are aimed at preventing restraint of trade and generally focus upon classical
competition law issues such as tying, full line forcing, retail price maintenance, exclusivity and so on.
These are found in Japan and Venezuela. The EU has this type of regulation in the form of article 101
of the Treaty on the Functioning of the European Union and the Vertical Restraints Block Exemption.

Foreign trade and investment regulations are typical of developing markets with either a protectionist
economic policy, or distinct political aims, such as the distribution of wealth. These are found in China,
Indonesia, Kazakhstan, Korea, Malaysia, Moldova, Russia, Ukraine, Belarus, Barbados and Vietnam.
Typically, they seek to regulate the entry into their domestic market of foreign business systems that
escape the restraints placed upon direct foreign investment. Clearly, the EU would not want to adopt
this type of law, as it is contrary to its general approach to free trade.

Pure franchise regulations focus upon areas of potential abuse in franchising, namely pre-contractual
disclosure and the in-term relationship between the franchisor and its franchisees. These are
generally symptomatic of more developed markets, and are found in the US, Australia, Canada,
Brazil, Taiwan, Georgia and Mexico. They have much in common with the franchise laws of France,
Spain, Italy, Belgium and Sweden. The laws of the US and Australia are of particular relevance. Some
of these pure franchise regulations have their roots in consumer protection law.

Some countries have adopted laws that are hybrid in form, in that they are best placed in one
category but also show characteristics of another; two examples are Malaysia and China. Both have
foreign trade and investment franchise laws with a strong element of pure franchise regulation in
them. Croatia defines franchise agreements but does not regulate them. The South African Consumer
Protection Act 2009, which will come into force in 2010, is a hybrid between anti-trust regulations (it
prevents or limits full-line forcing) and pure franchise regulations (focusing on pre-contractual
disclosure). All eight of the EU member state franchise laws are pure franchise regulations.

In addition to the 21 countries outside of the EU that have franchise specific laws, Tajikistan is also
currently contemplating enacting one. The New Zealand government has recently rejected the need
for a franchise specific law. The majority of these franchise regulations can be best categorised as
foreign trade and investment regulations. They are more concerned with regulating foreign investment
and trade than ensuring that potential franchise abuses are prevented or at least reduced. A number
of themes can be identified:

Piloting concepts

This is an issue that was discussed at some length in the Italian parliament when it was considering
its franchise law. China and Vietnam came to the same conclusion as the Italian legislature,
prohibiting franchising by a franchisor that has not piloted the operation. In China, franchisors are
required to establish and operate two company-owned units for more than one year before granting
franchises to third parties. In the earlier regulation, the pilot had to be in China, but the current law
removed this requirement, mirroring the debate in Italy as to where the pilot operation has to be.

In Vietnam, pursuant to article 2 of the Commercial Law of 2001, which came into force on 1 January
2006, a franchisor must be a lawfully established enterprise either in Vietnam or in a foreign country
and a franchise can only be granted to a franchisee who has a Vietnamese business licence. In
addition, the franchise system must have been in operation for at least a year before a franchise can
be granted. In the case of a sub-franchise granted to a Vietnamese master franchisee, the
Vietnamese master franchisee must have operated the franchise business for at least a year before it
can grant sub-franchises to unit franchisees.
Disclosure

All of the countries that require pre-contractual disclosure take a similar approach to the issue,
although the details tend to vary a little. The influence of the American Uniform Franchise Disclosure
Document (UFDD) is generally evident.

Timing of disclosure

The time at which disclosure must be given tends to range from between 10 and 20 days before
signing, although this does vary in some jurisdictions. In Brazil the offering circular must be delivered
to a prospective franchisee at least 10 days prior to the execution of a franchise agreement. Malaysia
and Taiwan opt for the same period, while Korea requires only five days and other countries require
longer. The Canadian states all require 14 days, Vietnam requires 15 days, China, 20 days (South
Africa is proposing the same time) and Mexico, a rather excessive 30 days. Japan and Indonesia lay
down no minimum period of time. The trigger from which the due date for disclosure is calculated is
generally the same. In Brazil, China, Mexico, Malaysia, Taiwan and Vietnam, it is the execution of the
franchise agreement. In the Canadian states and Korea, it is the earlier of the execution of the
franchise agreement and the payment of any consideration.

Cooling-off period

Some jurisdictions take the view that in addition to the period between service of the disclosure
document and closing, a further period during which the franchisee can withdraw is appropriate.
Malaysia, Mexico and Taiwan require a cooling-off period after the execution of the franchise
agreement during which the franchisee can withdraw from the relationship without penalty. These
range from a 30-day cooling-off period in Mexico to seven days in Malaysia, and five days in Taiwan.

Contents

All jurisdictions take a similar approach to the information that needs to be disclosed, namely, details
of the franchisor and the commercial terms and details of the agreements. However, the details tend
to vary in a number of aspects particularly with regards to the terms of the franchise agreement, the
identity and experience of the franchisor and the franchise network. The information to be disclosed
by the different jurisdictions is, in general terms, very similar:

• basic details of the franchisor;

• description of the franchise and of the market;

• financial information about the franchisor;

• details of the franchise network

• litigation details;

• initial fee, initial investment and continuing fees;

• earning claims;

• restriction on the franchisee;

• descriptions of the obligations that the parties owe towards one another;

• purchase ties and personal involvement of franchisee;

• term, termination, renewal;

• details about franchisors’ IP rights; and

• details of financing arrangements offered by the franchisor

Exclusivity

The consequences of failure to comply with the disclosure requirements vary somewhat. It generally
entitles the franchisee to walk away from the agreement provided it acts within a reasonable period of
entering into the agreement. Some jurisdictions also impose fines for failure to comply. Certain
jurisdictions enable the government to take the initiative although most simply grant the right to the
franchisee.

Minimum term

Only two jurisdictions impose a minimum term for the franchise agreement. Both take on a foreign
trade investment approach to the regulation of franchising. In Malaysia the franchise agreement must
be for a minimum period of five years. In Indonesia, in contrast to the provision in the former decree,
which stated that a franchise agreement had be for a minimum period of five years, this period is now
extended for Master Franchise Agreements to at least 10 years. Interestingly, the franchise business
certificate which the registrant receives is the Surat Tanda Pendaftaran Usaha Waralaba (STPUW),
which is only valid for five years, although it can be extended if the franchise agreement is still valid.

A general duty of good faith

The Canadian provinces, China, Korea and Malaysia impose a duty of good faith on both the
franchisor and the franchisee, which impacts upon what the franchisor is permitted to do during the
relationship. In Canada all franchise agreements impose upon the parties a duty of fair dealing in its
performance and enforcement.
In Korea, both parties to a franchise transaction must exercise good faith in the performance of their
duties and enumerates several specific franchisor and franchisee duties. In Malaysia both the
franchisor and the franchisee are under a duty of good faith to each other and must act in an honest
and lawful manner and endeavour to pursue the best franchise business practice of the time and
place .

Registration requirements

Some jurisdictions require the franchisor to register relevant details and the documentation with a
government agency. In developing markets this seems to be to enable the government to monitor
franchisors doing business in the market while in more developed economies (such as the US and
Spain) it is to ensure transparency and maintain a certain level of quality.

Compulsory contents of franchise agreements

A number of countries insist that a franchise agreement should contain certain standard clauses.
There is a wide variety of approaches and no general trend or pattern can be identified other than a
general desire for comprehensiveness.

Dispute resolution

Some jurisdictions, such as Italy, impose certain requirements concerning dispute resolution.

Non-Franchise Specific Legislation

Franchising is, of course, also regulated by general commercial law. The laws that are of most
relevance tend to be good faith, anti-trust, misrepresentation, breach of contract, employment law,
commercial agency law, consumer law and unfair competition law. In many jurisdictions franchisors
find themselves hard done by under some of these laws, particularly employment, agency and
consumer laws. They can impose heavy and inappropriate burdens on them with regards to
disclosure obligations and termination rights. Lawyers therefore, need to be very careful when
advising franchisors on entering new markets, even if they do not have franchise laws.

***

To advise clients appropriately on international franchising, lawyers need to have a good knowledge
of both the various franchise regulations that exist and the way that general commercial law impacts
upon them. It is a complex area of law, which requires expert advice.
Joint venture
From Wikipedia, the free encyclopedia

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For other uses, see Joint Venture (disambiguation).

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A joint venture is a business agreement in which parties agree to develop, for a finite time, a
new entity and new assets by contributing equity. They both exercise control over the
enterprise and consequently share revenues, expenses and assets. There are other types of
companies such as JV limited by guarantee, joint ventures limited by guarantee with partners
holding shares.

In European law, the term 'joint-venture' is an elusive legal concept, better defined under the
rules of company law. In France, the term 'joint venture' is variously translated as 'association
d'entreprises', 'entreprise conjointe', 'co-entreprise' and 'entreprise commune'. But generally,
the term societe anonyme loosely covers all foreign collaborations. In Germany,'joint venture'
is better represented as a 'combination of companies' (Konzern)[1]

On the other hand, when two or more persons come together to form a temporary
partnership for the purpose of carrying out a particular project, such partnership can also be
called a joint venture where the parties are "co-venturers".

The venture can be for one specific project only - when the JV is referred more correctly as a
consortium (as the building of the Channel Tunnel) - or a continuing business relationship.
The consortium JV (also known as a cooperative agreement) is formed where one party seeks
technological expertise or technical service arrangements, franchise and brand use
agreements, management contracts, rental agreements, for ‘‘one-time’’ contracts. The JV is
dissolved when that goal is reached.

Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson and Penske
Truck Leasing.

Contents
[hide]

• 1 Concept
o 1.1 Reasons for one partner
o 1.2 Downsides
o 1.3 Joint venture and game theory
• 2 Finding ideas or partners
• 3 Preparation
• 4 Partner selection
• 5 Feasibility study
• 6 Company incorporation
• 7 Shareholders' agreement
• 8 Chinese Law
o 8.1 Equity joint ventures
o 8.2 Cooperative joint ventures
o 8.3 Wholly Foreign Owned Enterprises (WFOEs)
o 8.4 Foreign Investment Companies Limited By Shares
(FICLBS)
o 8.5 Investment Companies by Foreign Investors (ICFI)
• 9 Joint ventures in India
o 9.1 Introduction
o 9.2 Liberalization of policy
o 9.3 Automatic licensing and administered licensing
o 9.4 Joint venture companies
o 9.5 Royalty payments and capitalization
o 9.6 India's legal system
o 9.7 Articles of Association
• 10 Dissolution
• 11 See also
• 12 References

• 13 External links

[edit] Concept
A JV on a continuing basis is the normal business undertaking. It is similar to a business
partnership with two differences: the first, a partnership generally involves an ongoing, long-
term business relationship, whereas an equity-based JV comprises a single business activity.
Second, all the partners have to agree to dissolve the partnership whereas a finite time has to
lapse before it comes to an end (or is closed by the Court due to a dispute).
The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint
venture may be a corporation, a limited liability enterprise, a partnership or other legal
structure, depending on a number of considerations such as tax and tort liability.

JVs are normally formed both inside one's own country and between firms belonging to
different countries. JVs are usually formed in order to combine strengths or to bypass legal
restrictions within a country; for example an insurance company cannot market its policies
through a banking company. Some JVs are also formed because the law of a country allows
dispute settlement, should it occur, in a third country. They are also formed to minimize
business,tax and political risks. The JV is an alternative to the parent-subsidiary business
partnership in emerging countries, discouraged, on account of (a) ignoring national objectives
(b) slow-growth (c) parental control of funds and (d) disallowing competition.

JVs can be in the manufacture of goods, services, travel space, banking, insurance, web-
hosting business, etc.

Today, the term 'JV' applies to more occasions than the choice of JV partners; for example,
an individual normally cannot legally carry out business without finding a national partner to
form a JV as in many Arab countries[2] where it is mentioned that there are over 500 Indian
JVs in Saudi Arabia. Also, the JV may be an easier first-step to franchising, as McDonald's
and other fast foods found out in China in the early difficult stage of development.

Other reasons for forming a JV are:

• reducing 'entry' risks by using the local partner's assets

• inadequate knowledge of local institutional or legal environment
• access to local borrowing powers
• perception that the goodwill of the local partner is carried forward
• in strategic sectors, the county's laws may not permit foreign nationals to
operate alone
• access to local resources through participation of national partner
• influence of local partners on government officials or 'compulsory'
requisite (see China coverage below)
• access by one partner to foreign technology or expertise, often a key
consideration of local parties (or through government incentives for the
mechanism)
• again, through government incentives, job and skill growth through
foreign investment, and
• incoming foreign exchange and investment.

[edit] Reasons for one partner

There may be strategic interests of one partner's alone:

• adding 'clout' (the influence of the other partner) to the enterprise

• build on company's strengths
• economies of (international) scale and advantages of size ('industrial
hubs')
• 'globalize' without size economies of scale (e.g.Indian and Israeli
pharmaceutical industries)
• influencing structural evolution of the industry
• pre-empting competition
 • defensive response to blurring industry boundaries
• speed to market
• market diversification
• pathways into R&D
• outsourcing

JVs are formed by the parties’ entering into an agreement that specifies their mutual
responsibilities and goals in an 'adventure. The JV partners can usually form the capital of the
company through injections of cash alone or cash together with assets such as 'technology' or
land and buildings. Subsequent to its formation the JV can raise debt for additional capital. A
written contract is crucial for legal provisions. All JVs also involve certain rights and duties.
Each partner to the JV has a fiduciary responsibility, even to act on someone’s behalf,
subordinating one's personal interests to those of the other person or that of the ‘sleeping
partner’. Upon its incorporation (see later) it becomes a company in most places, or a
corporation (in the US).

[edit] Downsides

Some of the downsides of a joint venture may be:[3]

• differing philosophies governing expectations and objectives of the JV

partners
• an imbalance in the level of investment and expertise brought to the JV by
the two parent organizations
• inadequate identification, support, and compensation of senior leadership
and management teams or
• conflicting corporate cultures and operational styles of the JV partners

A JV can terminate at a time specified in the contract, upon the death of an active member
(unusual) or if a court so decides in a dispute taken to it.

Joint ventures have existed for many years in the US, from their usage in the railroad industry
(one party controls the sources of oil and the other party the rights of ferrying it) and even to
manufacturing and services. In the financial services industry JVs were widely employed for
marketing products or services that one of the parties, which acting alone, would have been
legally prohibited from doing so.[4]

[edit] Joint venture and game theory

JVs may also be formed by companies on the 'game theory' that is grounded on the
perception that of the many possible moves 'on the chessboard', a competitor cannot properly
guess the motive of the JV [5].

[edit] Finding ideas or partners

In the era of the Internet, finding opportunities for exploiting an idea is sizeable together with
remote, or advertised, communicating. There are also the blogging networks as well the
social networking sites and search engines. There are also other venues to find a JV partner
such as seminars, exhibitions, directories, websites such as
http://www.clickbank.com/index.html and the plain newspaper advertising of opportunities.
One should not forget websites which have become prosperous like eBay and Amazon.com,
Wikipedia, Youtube to name the most obvious. Forming JVs with distributor and marketing
agencies is possible in this flat world to market a product. But finding an entrepreneur for a
JV is another task!

Nonetheless, there are risk-takers- Venture capitalists, angel investors and venture managers
(See Carried Interest [6] - especially in the high-tech industries like IC chips or biotechnology.
Although they typically exit once an idea or an opportunity proves itself, there are watchful
funds and investors who could go in for a JV.

Joint ventures have also become more prominent in the world of alternative investments since
the financial crisis began in 2007. In an Opalesque.TV video, Tim Krochuk of hedge fund
GRT Capital Partners describes how hedge funds have begun teaming up with traditional
long-only asset managers in joint ventures to provide alternative capabilities to existing
traditional asset management firms. The emergence of these joint ventures continues the
trend of alternative investments becoming a larger piece of traditional portfolios.

[edit] Preparation
Formulating the JV is a series of steps, one which needs a lot of work and yet, at the same
time, precision. One can here only underline the steps or information that will be needed by
the JV candidate. They are [7]

• the objectives, structure and projected form of the joint venture, including
the amount of investment and financing arrangements and debt
• the JV(s) products, their technical description and usage
• alternate production technologies
• estimated cost of equipment
• estimated product price(s)
• costing
• market analysis for the product, inside and outside the ‘territory’
• analysis of competition
• projected sales and methods of distribution
• details of offered site, including output projections, transport and
warehousing, testing and quality control, by-products and waste;- supply,
utility, and transport requirements;
• estimated technology transfer costs
• foreign exchange projections ( where applicable)
• staff requirements and training
• financial projections
• environmental impact
• social benefit

[edit] Partner selection

While the following offers some insight to the process of joining up with a committed partner
to form a JV, it is often difficult to determine whether the commitments come from a known
and distinguishable party or an intermediary. This is particularly so when the language barrier
exists and one is unfamiliar with local customs, especially in approaches to Government,
often the deciding body for the formation of a JV or dispute settlement.
The ideal process of selecting a JV partner emerges from:

• screening of prospective partners

• short listing a set of prospective partners and some sort of ranking
• ‘due diligence’ - checking the credentials of the other party
• availability of appreciated or depreciated property contributed to the joint
venture
• the most appropriate structure and invitation/bid
• foreign investor buying an interest in a local company

Companies are also called JVs in cases where there are dominant partners together with
participation of the public. There may also be cases where the public shareholding is
substantial but the founding partners retain their identity. These companies may be 'public' or
'private' companies. It would be out of place to describe them, except to say there are many in
India.

Further consideration relates to starting an new legal entity ground up. Such an enterprise is
sometimes called 'an incorporated JV', one 'packaged' with technology contracts
(knowhow,patents,trademarks and copyright), technical services and assisted-supply
arrangements.

The consortium JV (also known as a cooperative agreement) is formed where one party seeks
technological expertise or technical service arrangements, franchise and brand use
agreements, management contracts, rental agreements, f or 'one-time' contracts, e.g., for
construction projects. They dissolve the JV when that goal is reached.

[edit] Feasibility study

A nascent JV project outlines:

• the partners
• the objectives and structure of the JV
• investment and financing arrangements
• product(s)and description and usage, output
• production technology
• equipment required and costs
• technology transfer costs
• cost-benefit analysis
• market analysis
• analysis of competition
• details of the site
• transport and warehousing
• by-products and waste
• supply, utility, and transport requirements
• foreign exchange projections
• staff requirements and training

Its feasibility, besides its profitability,is assessed (in terms of Government control over the
JV) by considering it, along with the Articles which will regulate it, by its strength and
weakness factors (for the economy or the country) in aspects as:
 • the quality of the technology - its appropriateness to the national
infrastructure, exports, etc
• value to national economy and other contributions (i.e.labor intensity,
environment factors, utility usage, "greeness" of the technology), waste-
treatment and disposal
• capability of recipient to absorb the technology
• cost of the technology and competitiveness
• supporting strengths (trademarks, patents, know-how,copyrights in case
of IT)
• limits imposed (by its supplier) on the use or non-use of the technology.

[edit] Company incorporation

A JV can be brought about in the following major ways:

• Foreign investor buying an interest in a local company

• Local firm acquiring an interest in an existing foreign firm
• Both the foreign and local entrepreneurs jointly forming a new enterprise
• Together with public capital and/or bank debt

In the U.K and India - and in many Common Law countries - a joint-venture(or else a
company formed by a group of individuals)must file with the appropriate authority the
Memorandum of Association. It is a statutory document which informs the outside public of
its existence. It may be viewed by the public at the office in which it is filed. A sample can be
seen at http://upload.wikimedia.org/wikipedia/meta/5/5f/Wikimedia_UK_-
_Memorandum_of_Association.pdf. Together with the Articles of Association, it forms the
'constitution' of a company in these countries.

The Articles of Association regulate the interaction between shareholders and the Directors of
a company and can be a lengthy document of up to 700000 + pages. It deals with the powers
relegated by the stockholders to the Directors and those withheld by them, requiring the
passing of Ordinary resolutions, Special resolutions and the holding of Extraordinary General
Meetings to bring the Directors' decision to bear.

A Certificate of Incorporation[8] or the Articles of Incorporation ( see sample at [9] ) is a

document required to form a corporation in the US ( in actuality, the State where it is
incorporated) and in countries following the practice. In the US, the 'constitution' is a single
document. The Articles of Incorporation is again a regulation of the Directors by the stock-
holders in a company.

By its formation the JV becomes a new entity with the implication:

• that it is officially separate from its Founders, who might otherwise be

giant corporations, even amongst the emerging countries
• the JV can contract in its own name, acquire rights (such as the right to
buy new companies), and
• it has a separate liability from that of its founders, except for invested
capital
• it can sue (and be sued) in courts in defense or its pursuance of its
objectives.
On the receipt of the Certificate of Incorporation a company can commence its business.

[edit] Shareholders' agreement

This is a legal area and is fraught with difficulty as the laws of countries differ, particularly
on the enforceability of 'heads of' or shareholder agreements. For some legal reasons it may
be called a Memorandum of Understanding. It is done in parallel with other activities in
forming a JV. Though dealt with briefly in shareholders’ agreement in Wikipedia, (also see
samples in [10],[11]) some issues must be dealt with here as a preamble to the discussion that
follows. There are also many issues which are not in the Articles when a company starts up or
never ever present. Also, a JV may elect to stay as a JV alone in a ‘quasi partnership’ to avoid
any nonessential disclosure to the Government or the public.

Some of the issues in a shareholders' agreement are:

• Valuation of intellectual rights, say,the valuations of the IPR of one partner

and ,say, the real estate of the other
• the control of the Company either by the number of Directors or its
"funding"
• The number of directors and the rights of the founders to their appoint
Directors which shows as to wether a shareholder dominates or shares
equality.
• management decisions - whether the board manages or a founder
• transferability of shares - assignment rights of the founders to other
members of the company
• dividend policy - percentage of profits to be declared when there is profit
• winding up - the conditions,notice to members
• confidentiality of know-how and founders' agreement and penalties for
disclosure
• first right of refusal - purchase rights and counter-bid by a founder.

There are many features which have to be incorporated into the Shareholders Agreement
which is quite private to the parties as they start off. Normally, it requires no submission to
any authority.

The other basic document which must be articulated is the Articles which is a published
document and known to members.

This repeats the Shareholders Agreement as to the number of Directors each founder can
appoint to the (see Board of Directors). Whether the Board controls or the Founders. The
taking of decisions by ‘simple’ majority of those present or a 51% or 75% majority with all
Directors present (their Alternates/proxy); the deployment of funds of the firm; extent of
debt; the proportion of profit that can be declared as dividends; etc. Also significant is what
will happen if the firm is dissolved; one of the partner dies. Also, the ‘first right’ of refusal if
the firm is sold, sometimes its ‘puts’ and ‘calls’.

Often the most successful JVs are those with 50:50 partnership with each party having the
same number of Directors but rotating control over the firm, or rights to appoint the
Chairperson and Vice-chair of the Company. Sometimes a party may give a separate trusted
person to vote in its place proxy vote of the Founder at Board Meetings. (See also [12] )
Recently, in a major case the Indian Supreme Court has held that Memorandums of
Understanding (whose details are not in the Articles of Association) are "unconstitutional"
giving more transparency to undertakings.

[edit] Chinese Law

It is interesting to study the JV laws of China because they are of recent vintage and because
such a unique law exists.

According to a report of the United Nations’ Conference on Trade and Development 2003,
China was the recipient of US$ 53.5 billion in direct foreign investment, making it the
world’s largest recipient of direct foreign investment for the first time, to exceed the USA.
Also, it approved the establishment of near 500,000 foreign investment enterprises.[13]. The
US had 45000 projects ( by 2004) with an in-place investment of over 48 billion [14]

Until 1949, no guidelines existed on how foreign investment was to be handled due to the
restrictive nature of China toward foreign investors. Since Mao Zedong initiatives in foreign
trade began to be applied, and Law applicable to foreign direct investment was made clear in
1979, The first Sino-foreign equity venture took place in 2001 .[15] The corpus of the law has
improved since then.

Companies with foreign partners can carry out manufacturing and sales operations in China
and can sell through their own sales network. Foreign-Sino Companies have export rights
which are not available to wholly Chinese companies as China desires to import foreign
technology by encouraging JVs and the latest technologies. Under Chinese law, foreign
enterprises are divided into several basic categories. Of these five will be described or
mentioned here: three relate to industry and services and two as vehicles for foreign
investment.

They are the Sino-Foreign Equity Joint Ventures EJVs) ,Sino-Foreign Co-operative Joint
Ventures (CJVs), the Law pertaining to Wholly Foreign-Owned Enterprises (WFOE)
(although they do not strictly belong to Joint Ventures) and the Investment Laws pertaining to
foreign investment companies limited by shares (FICLBS) and Investment Companies
through Foreign Investors (ICFI).

[edit] Equity joint ventures

The EJV Law is between a Chinese partner and a foreign company. It is incorporated in both
Chinese (official) and in English (with equal validity), with limited liability. Prior to China’s
entry into WTO – and thus the WFOEs – EJVs predominated. In the EJV mode, the partners
share profits, losses and risk in equal proportion to their respective contributions to the
venture’s registered capital. These escalate upwardly in the same proportion as the increase in
registered capital.

The JV contract accompanied by the Articles of Association for the EJV are the two most
fundamental legal documents of the project. The Articles mirror many of the provisions of
the JV contract. In case of conflict the JV document has precedence These documents are
prepared at the same time as the feasibility report. There are also the ancillary documents
(termed "offsets" in the US) covering know-how and trade-marks and supply of equipment
agreements.
The minimum equity is prescribed for investment (truncated) [16] (also see [17]:

Where the foreign equity and debt levels are:

• less than US$3million, equity must constitute 70% of the investment;

• more than US$3 million, but less than US$10 million, equity must
constitute at least 50% of the investment;
• more than US$10 million but less than US$30 million, 40% must be equity;
and
• more than US$30 million, 33% of the investment must be equity.

There are also intermediary levels.

The foreign investment in the total project must be at least 25%. No minimum investment is
set for the Chinese partner. The ‘timing’ of investments must be mentioned in the Agreement
and failure to invest in the indicated time, draws a penalty.

[edit] Cooperative joint ventures

Co-operative Joint Ventures (CJVs) [18] are permitted under the Sino-Foreign Co-operative
Joint Ventures. Co-operative Enterprises are also called Contractual Operative Enterprises.

The CJVs may have a limited structure or unlimited – therefore, there are two versions. The
limited liability version is similar to the EJVs in status of permissions - the foreign investor
provides the majority of funds and technology and the Chinese party provides land, buildings,
equipment, etc. However, there are no minimum limits on the foreign partner which allows
him to be a minority shareholder.

The other format of the CJV is similar to a partnership where the parties jointly incur
unlimited liability for the debts of the enterprise with no separate legal person being created.
In both the cases, the status of the formed enterprise is that of a legal Chinese person which
can hire labor directly as, for example, a Chinese national contactor. The minimum of the
capital is registered at various levels of investment.

Other differences from the EJV are to be noted:

• A Co-operative JV does not have to be a legal entity.

• The partners in a CJV are allowed to share profit on an agreed basis, not
necessarily in proportion to capital contribution. This proportion also
determines the control and the risks of the enterprise in the same
proportion.
• it may be possible to operate in a CJV in a restricted area
• a CJV could allow negotiated levels of management and financial control,
as well as methods of recourse associated with equipment leases and
service contracts. In an EJV management control is through allocation of
Board seats [19].
• during the term of the venture, the foreign participant can recover his
investment, provided the contract prescribes that and all fixed assets will
become the property of the Chinese participant on termination of the JV.
• foreign partners can often obtain the desired level of control by
negotiating management, voting, and staffing rights into a CJV's Articles;
since control does not have to be allocated according to equity stakes.
Convenience and flexibility are the characteristics of this type of investment. It is therefore
easier to find co-operative partners and to reach an agreement.

With changes in the Law, it becomes possible to merge with a Chinese company for a quick
start. A foreign investor does not need to set up a new corporation in China. He uses the
Chinese partner’s business license, under a contractual arrangement. Under the CJV,
however, the land stays in the possession of the Chinese partner

There is another advantage: the percentage of the CJV owned by each partner can change
throughout the JV’s life, giving the option tot the foreign investor, by holding higher equity,
obtains a faster rate of return with the concurrent wish of the Chinese partner of a later larger
role of maintaining long term control

The parties in any of the ventures, EJV, CJV or WFOE prepare a feasibility study outlined
above. It is a non-binding document - the parties are still free to choose not to proceed with
the project. The feasibility study must cover the fundamental technical and commercial
aspects of the project before the parties can proceed to formalize the necessary legal
documentation. The study must contain details referred to earlier under Feasibility Study.[20]
(submissions by the Chinese partner).

[edit] Wholly Foreign Owned Enterprises (WFOEs)

The basic Law of the PRC Concerning Enterprises with Sole Foreign Investment controls
WFOEs. China’s entry into the World Trade Organization around 2001 has had profound
effect on foreign investment. Not being a JV, they are only considered here only in
comparison or contrast.

To implement WTO commitments, China publishes from time to time updated versions of {|
class="wikitable" |-its ‘Catalogs for the Guidance of Investments’ (affecting all ventures) -
the areas in which investment which is prohibited, encouraged and restricted. All foreign
investments which are absent in the list are permitted.

The WFOE is a Chinese legal person and has to obey all Chinese laws. As such, it is allowed
to enter into contracts with appropriate government authorities to acquire land use rights, rent
buildings, and receive utility services. In this it is more similar to a CJV than an EJV.

WFOEs are expected by PRC to use the most modern technologies and to export at least 50%
of their production, with all of the investment is to be wholly provided by the foreign investor
and the enterprise is within his total control.

WFOEs are typically limited liability enterprises (like with EJVs) but the liability of the
Directors, Managers, Advisers, and Suppliers depends on the rules which govern the
Departments or Ministries which control product liability, worker safety or environmental
protection.

An advantage the WFOE enjoys over its alternates is the protection to its know-how but a
principal disadvantage is absence of an interested and influential Chinese party.

As of the 3rd Quarter 2004 the WFOEs had replaced EJVs and CJVs as follows [21] :

Distribution Analysis of JV in Industry -

 PRC

200 200 200 200 2004

Type JV
0 1 2 3 (3Qr)

46. 50. 60. 62.

WFOE 66.8
9 3 2 4

35. 34. 20. 29.

EJV,% 26.9
8 7 4 6

15. 12.
CJV,% 9.6 7.2 5.2
9 9

Misc JV* 1.4 2.1 1.8 1.8 1.1

CJVs 173 158 159 154

996
(No.)** 5 9 5 7

(*)=Financial Ventures by EJVs/CJVs (**)=Approved JVs

[edit] Foreign Investment Companies Limited By Shares (FICLBS)

These enterprises are formed under the Sino-Foreign Investment Act . The capital is
composed of value of stock in exchange for the value of the property given to the enterprise.
The liability of the shareholders, including debt, is equal to the amount of shares purchased
by each partner.

The registered capital of the company the share of the paid-in capital. The minimum amount
of the registered capital of the company should be RMB 30 million. These companies can be
listed on the only two PRC Stock Exchanges – the Shangri and Shenzhen Stock Exchanges.
Shares of two types are permitted on these Exchanges – Types “A” and Type “B” shares.

Type A are only to be used by Chinese nationals and can be traded only in RMB. Type “B”
shares are denominated in Remembi but can be traded in foreign exchange and by Chinese
nationals having foreign exchange. Further, State enterprises which have been approved for
corporatization can trade in Hong Kong in “H” shares and in NYSE exchanges.

“A” shares are issued to and traded by Chinese nationals. They are issued and traded in
Renminbi. “B” shares are denominated in Renminbi but are traded in foreign currency. From
March 2001, in addition to foreign investors, Chinese nationals with foreign currency can
also trade “B” shares.

[edit] Investment Companies by Foreign Investors (ICFI)

Brief coverage is provided.

Investment Companies are those established in China by sole foreign-funded business or

jointly with Chinese partners who engage in direct investment. It has to be incorporated as a
company with limited liability.
The total amount of the investor's assets during the year preceding the application to do
business in China has to be no less than US $ 400 million within the territory of China. The
paid-in capital contribution has to exceed $ 10 million. Furthermore, more than 3 project
proposals of the investor's intended investment projects must have been approved. The shares
subscribed and held by foreign Investment Companies by Foreign Investors (ICFI) should be
25%. The investment firm can be established as an EJV.

[edit] Joint ventures in India

[edit] Introduction

India’s has an open philosophy on capital markets and it closely parallels its English peers in
operation. The Bombay Stock Exchange (BSE) has close to 5000 listed shares, and trades in
several thousand more, making it the largest stock exchange in the world [22]. The National
Stock Exchange is the other exchange at present. English is one of the preferred languages of
the market and its policies are first announced in English.

The Indian people are skilled and entrepreneurial by nature as evident in world markets but in
India less than 1% of its billion population at present – that is, only 11 million people -
representing 3% of households invest in the market.[23]

People who ‘work’ the market in other languages are adept in recognizing concepts in
derivatives and futures and trade in them. India is one of three countries that has
supercomputers, one of six that has satellite launching facilities and has over 100 Fortune 500
companies doing R&D in the country.[24]

India does not restrict the repatriation of investments, dividends, profits and if need be, the
principal ,through the single autonomous entity, the Reserve Bank of India (RBI). The Indian
currency – the Rupee – is 100% convertible for ‘’ earnings’’ at free market rates.

India’s new policies (described below) have resulted in aggregate foreign investment flowing
into India increasing from US$103 million in 1990-91 to US$61.8 billion in 2007-2008.[25],[26]

[edit] Liberalization of policy

India’s basic outlines of industrial development were framed by Pandit Jawaharlal Nehru in
1956 making the private sector a participant in development, but giving the public sector a
dominant position.[27]

However, by the early 90s the situation in the world economies turned: Japan entered a phase
of stagnancy of growth, the pace of the ‘Asian tigers slowed, as did the European economy.
But, also, the country’s balance of payments crisis.

To counteract these effects a new policy was born in July 1991, the reformed New Industrial
Policy (NIP) [28] . It and later modifications (further liberalization) streamlines procedures,
deregulated industrial licensing, and vastly expanded the role for the private sector, while
shrinking the Public Sector. Also, anti-trust laws ( the Monopoly and Restrictive Practices
Act) were trimmed and customs duties for industrial goods slashed. The restrictive Foreign
Exchange Regulation Act (FERA) was replaced by the Foreign Exchange Management Act
(FEMA).
Industrial policy divided industry into three categories:

• those that would be reserved for public sector development,

• those under private enterprise with or without State participation, and
• those in which investment initiatives would ordinarily emanate from
private entrepreneurs.

Only six industries are exclusively ‘reserved’ for the Public Sector.

Trading (except single-brand retailing), agricultural or plantation activities housing and real
estate business (except development of townships), agriculture, atomic energy, gambling &
betting, lottery business, and retail construction of residential/commercial premises, roads or
bridges are on the ‘’’negative’’’ list for foreign participation..

[edit] Automatic licensing and administered licensing

India’s investment policy as of April 2010 is presented at the site [29]. Briefly, India allows
investments both through Foreign Direct Investment (FDI), meant for long-term controlling
investments and Portfolio Investment - taking a position by buying shares of a company -
which is likely short-term capital market operation. Foreign Institutional Investors ("FII’s)
from reputable institutions (like pension funds, mutual funds) may (and do) participate in the
Indian capital markets.

Industrial approvals are ‘’ automatic ‘’ ( RBI approval of investment) for most manufacturing
industries with equity investment up to 51% foreign control and as of 1997 to 74% in certain
select industries ( See the current policy highlighted above). For another 36 ‘’ sectors’’ there
are varying limits ‘’without output restrictions’’. RBI approvals come within two weeks for
the invested entity. Investments can flow to the country prior to approvals for such cases.
Even in sectors limited to 51%, a higher level of control, up to 74%, is feasible if approach is
made to the Foreign Investment Promotiomn Board (FIPB) – thus, ’administered’’-licensing .
Investments up to 100% are allowed in power generation, coal washeries, electronics, an
Export Oriented Unit (EOU) in the EPZ's).

NRI (Non-Resident Indians), PIO (People of Indian Origin), and OCBs (Overseas
Commercial Bodies) have relaxed accommodation

Industrial licensing of the 1951 policy is applicable to “Annex II” (not shown here) industries
which revolve around certain key natural resources. It is administered through FIPB .

[edit] Joint venture companies

JV companies are the preferred form of corporate investment but there are no separate laws
for joint ventures. Companies which are incorporated in India are treated on par as domestic
companies .

• The above two parties subscribe to the shares of the JV company in agreed
proportion, in cash, and start a new business.

• 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.

• 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.

Private companies ( only about $2500 is the lower limit of capital, no upper limit) are
allowed [30] in India together with and public companies, limited or not, likewise with
partnerships. sole proprietorship too are allowed. However, the latter are reserved for NRIs.

Through capital market operations ‘’foreign’’ companies can transact on the two exchanges
without prior permission of RBI but they cannot own more than 10 percent equity in paid-up
capital of Indian enterprises, while aggregate foreign institutional investment (FII) in an
enterprise is capped at 24 percent.

The establishment of wholly owned subsidiaries (WOS) and project offices and branch
offices, incorporated in India or not. Sometimes, it is understood, that Branches are started to
‘test’ the market and get a its flavor. Equity transfer from residents to non-residents in
mergers and acquisitions (M&A) is usually permitted under the automatic route. However, if
the M&As are in sectors and activities requiring prior government permission (Appendix 1 of
the Policy) then transfer can proceed only after permission [31] .

Joint ventures with trading companies are allowed together with imports of secondhand
plants and machinery.

It is expected that in a JV, the foreign partner supplies technical collaboration and the pricing
includes the foreign exchange component, while the Indian partner makes available the
factory or building site and locally made machinery and product parts. Many JVs are formed
as public limited companies (LLCs) because of the advantages of limited liability.[32].

JVs are expected in the nuclear industry following the NSG waivers for nuclear trade. The
nuclear power industry has been witnessing several JVs. The country has set an imposing
target of achieving an installed capacity of 20 GW by 2020 and 63 GW by 2030. The total
size of the Indian nuclear power market will be around $40 billion by 2020 with a growth rate
(AAGR) of 9.2% in installed nuclear capacity during 2008–20. The total investments made
are to a tune of around $1.30 billion following the Indo-US nuclear deal in 2008 [33] .

There is a group of industries reserved for the small scale sector wherein foreign investment
cannot exceed 24% and if does then approval is necessary from the FIPB, and the unit loses
its ‘smallness’ and requires an industrial license [34] .

There are many JVs. lying outside of this discussion – Hindusthan Unilever-Unilever, Suziki-
Govt. of India (Maruti Motors), Bharti Airteli-Singapore Telecom, ITC-Imperial Tobacco,
P&G Home Products, Whirlpool, having financial participation with the financial institutions
and the lay public which are monitored by SEBI (Securities and Exchange Board of India),
also an autonomous body. This lies outside this discussion.

Under the country’s laws, a public company must:

• Have at least seven shareholders

 • Have at least three directors
• Obtain government approval for the appointment of its management.
• Have both a "trading certificate" and certificate of incorporation before
commencing its business.
• Publish also a prospectus (or file a statement) before it can start transact
business.
• Hold statutory meetings

There are several other provisions contained in the Companies Act 1956 which also need to
be followed.

[edit] Royalty payments and capitalization

For the automatic route, RBI allows [35]:

Lump sum payments ‘’not’’ exceeding US$ 2 million.

Royalty payable is limited to 5 % for domestic sales and 8 % for exports,’’ ‘’without’’ any
restriction on the duration of the royalty payments’’. The royalty limits are net of taxes and
are calculated according to standard conditions. Payments are made through RBI.

The royalty is calculated on the basis of the net ex-factory sale price of the product, exclusive
of excise duties, minus the cost of the standard bought-out components and the landed cost of
imported components, irrespective of the source of procurement, including ocean freight,
insurance, custom duties, etc.

Issue of equity shares against lump sum fees and royalty fees is permitted..

For exceeding this norm, the firm has to approach FPBI.

[edit] India's legal system

India is a common law country with a written constitution, guaranteeing individual and
property rights.

There is a single hierarchy of courts.

Arbitration can be in India or International Commercial Arbitration.

The country has recently enacted the Arbitration and Conciliation Act, 1996 ("New Law").
The New Law is based on the United Nations Commission on International Trade Law
(UNCITRAL) Model Law on International Commercial Arbitration ("Model Law [36].

All agreements are under Indian laws.

[edit] Articles of Association

Introduction

The Articles of Association determine how a company is run. It is a set of 'bye-laws' which
form the 'constitution' of the Company. It is often required by Law to be part of the Joint-
Venture agreement . Some clauses relating to the following may be absent. Where this the
case, it is assumed that the provisions as laid out in the in Company Law apply. The Articles
can cover a medley of topics, mot all of which is required in a country's law. Although all
will not be discussed, it can cover:

• Valuation of intellectual rights, say,the valuations of the IPR of one partner

and,say,the real estate of the other
• The appointments of directors - which shows whether a shareholder
dominates or shares equality.
• directors meetings - the quorum and percentage of vote
• management decisions - whether the board manages or a founder
• transferability of shares - assignment rights of the founders or other
members of the company
• special voting rights of a Chairman,and mode of election
• dividend policy - percentage of profits to be declared when there is profit
• winding up - the conditions,notice to members
• confidentiality of know-how and founders' agreement and penalties for
disclosure
• first right of refusal - purchase rights and counter-bid by a founder.

Some agreements mention that the Articles of Association as given in Company Law apply to
the agreement except where specifically differing; and others say, explicitly, that they do not
bind that the agreement and that it contains all legally acceptable bye-laws. The typical
Articles in an Indian Public Sector Company are given in [37].

A Company is essentially run by the shareholders, but for convenience, and day-to-day
working, by the Directors. The shareholders elect the directors at the Annual General
Meeting (AGM), which is statutory. Thus, the Board of Directors (BOD).

The number of directors depends on the size of the Company and statutory requirements. The
Chairperson is generally a well-known outsider but he /she may be a working Executive,
typical of an American enterprise. The Directors may or may not be employees of the
Company.

There are usually some major shareholders who form the company. Each usually has the right
to nominate, without objection of the other, certain number of directors who become
nominees for the election by the shareholder body at the AGM. The Treasurer and
Chairperson is usually the privilege of one of the JV partners (which nomination can be
shared). Shareholders can also elect Independent directors - persons not associated with the
promoters of the company. person is generally a well-known outsider but he /she may be a
working Executive. The Directors may or may not be employees

Once elected, the BOD manages the Company. The shareholders play no part till the next
AGM. or EGM. The Objectives and the purpose of the Company are determined in advance
by the shareholders and the Memorandum of Association (MOA) - which denotes the name
of the Company, its Head- Office, its Directors and the main purposes of the Company - for
public access. It cannot be changed except at an AGM or Extraordinary General Meeting
(EGM) and statutory allowance. The MOA is generally filed with a 'Registrar of Companies'
who is an appointee of the Government. For their assurance the shareholders, an Auditor is
elected at each AGM. The MOA is currently dispensed with in many countries.
The Board meets several times each year. At each meeting there is an 'agenda' before it. A
minimum number of Directors (a quorum) is required to meet. This is either determined by
the 'bye-laws' or is statutory. It is Presided by the Chairperson or in his absence, by the Vice-
Chair. The Directors survey their area of responsibility. They may determine to make a
'Resolution' at the next AGM or if it is an urgent matter, at an EGM. The Directors who are
the electives of one major shareholder, may present his/her view but this is not necessarily so
- they may have to view the Objectives of the Company and competitive position. The Chair
may have to 'break' the vote if there is a 'tie'. At the AGM, the various Resolutions are put to
vote.

The AGM is called with a notice sent to all shareholders. A certain quorum of shareholders
are required to meet. If the quorum requirement is not met , it is canceled and another
Meeting called. If it at that too a quorum is not met, a Third Meeting is called and the
members present, unlimited by the quorum, take all decisions.

Decisions are taken by a show of hands; The Chair is always present. Where decisions are
made by a show of hands is challenged, it is done, by a count of votes. Voting can be taken in
person or by marking the paper sent by the Company. A person who is not a shareholder of
the Company can vote if he/she has the 'proxy', an authorization from the shareholder. Each
share carries the votes assigned to it. Some votes maybe for the decision, others not. Two
types of decision known as the Ordinary Resolution and the other a Special Resolution can be
tabled at a Director's Meeting: The Ordinary Resolution requires the endorsement by a
majority vote, sometimes easily met by partners' vote. The Special Resolution requires 60,70
or 80% of the vote as stipulated by the 'constitution' or the very same bye-laws of the
Company. Shareholders other than partners are required to vote. The matters which require
the Ordinary and Special Resolution to be passed are enumerated. A typical Articles of
Association is shown in the Nestle S.A. or Nestle Ltd [38].

[edit] Dissolution
The JV is not a permanent structure. It can be dissolved when:

• Aims of original venture met

• Aims of original venture not met
• Either or both parties develop new goals
• Either or both parties no longer agree with joint venture aims
• Time agreed for joint venture has expired
• Legal or financial issues
• Evolving market conditions mean that joint venture is no longer
appropriate or relevant