Comparison of The Joint Venture Laws Of India With UAE And Singapore

“One doesn't have to be a large corporation to benefit from the advantages of volume. This can also be achieved through joint ventures.” (Norbert Reithofer).

Introduction:

For a long time in business and economics, one of the main field of concerns which has served as focal point is the pursuit for maximizing profits that has forced them to not only to explore but exploit every avenue possible. With money on the line, people are always looking for new ways to increase income; whether it's a street-side sole proprietor with a lakh in capital or multibillion-dollar corporations, business is almost always profit-driven.(Nigam, 2020). But in this virtual age of global economy driven by economic liberalization it has becomingly increasingly difficult rather impossible for the businesses to survive this fierce competition on their own. Therefore, two or more people motivated by a shred purpose often partner together to survive and realize the economic gains on their true potential which is termed as a joint venture.

What are Joint Ventures?

A joint venture is a term used to describe a business initiative in which there is a business agreement in which two or more parties agree to pool their resources. “In a joint venture two or more parties that seek the development of a single enterprise or project for to gain entrance into foreign markets. Foreign entities that like to enter a nation’s domestic market often face problems and are at a disadvantage which makes not only the survival tough but sometimes make it impossible for the firms to enter the domestic markets. The common problems include the lack of knowledge of the market, high cost of transportation, no local connection etc. Hence, the foreign entities want a domestic entity as a partner/ collaborator to enter into the domestic market and for this purpose they commonly form joint ventures with domestic entities already present in the market. This gives them a edge and makes there survival easier by providing a established market with consumer knowledge whereas on the other hand the domestic market is benefitted by the foreign entity as it brings new technology, business practices and culture into the market fostering the economic strength and circulation of the country. For e.g. Let’s continue with our example of pharmaceutical sector. Several new combinations with different strengths are introduced in the pharmaceutical manufacturing to make human survival easier and healthier but it is not possible for the research firm alone to cater the large market all-over efficiently, he can only cover a small area efficiently. To this problem joint ventures comes as a solution offering leverage and convenience of selling your product efficiently to large globalised market.

“There can be different forms of joint ventures among which the common ones are contractual joint ventures and equity based joint ventures. In, India the most common type of joint venture is contractual joint venture.” In this type of a joint venture the parties collaborate without creating a separate legal entity or without claiming the ownership. For e.g. Brahmos Aerospace, Mahindra- Renault LTD, PNB MetLife etc. On the other hand, being equity based joint venture in which parties collaborate or come together by forming a new agreement i.e. to form a new legal entity owned by each party. For example, are the Vistara airways, Air Asia India, Dhirubhai Ambani Aerospace Park etc.

Advantages of Joint Ventures:

Helps to capitalize the opportunity and resources available:

A joint venture helps to take advantage of the opportunity by making it feasible which otherwise wouldn’t have been able to be pursued by combining the resources of two or more than two individuals or entities and splitting the risk and capital involved i.e. it helps the meet the financial resources with the technological expertise. For e.g. One company might have a well-established manufacturing process, while the other company might have superior distribution channels, by combining the resources it can help them achieve objective effectively utilizing resources available to them.

2. Reduces the individual risk involved:

By splitting the risk involved it reduces the individual risk which gives individuals as a whole to take more risk than they would actually take which leads to economic and technological advancement i.e. it reduces the risk an individual takes thereby increasing the risk capacity of the combined individuals resulting in high level of risks and making easy the high scale and high capital business pursuit.

3. Provides technological expertise with resources and finances:

There may be two companies or parties forming a joint venture might each have different backgrounds, skill sets, or expertise. When these are combined through a Joint venture, each company can benefit from the other’s talent.

4. Helps penetrate the foreign Markets:

Another common use of joint ventures is to partner with a local business to enter a foreign market. A company that wants to expand its

5. Reduce the cost involved:

It provides companies with high scale and higher area of operation which benefits the companies through economies of scale model which is to say that the companies use economies of scale i.e. they derive cost advantages by higher volumes of production. As higher scale makes the production efficient. Companies achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.

Laws for Joint Ventures in India:

There are no separate laws for Joint ventures in India. because it is like a partnership that is binding by the legal agreement but there is no separate Legal Entity which is formed whereas the Equity-based Joint Ventures are regulated by the Companies Act 2013 because a new legal entity i.e. a separate legal entity like a company is formed.

“Some other laws by which Joint Ventures in India are regulated:

Competition Act, 2002.

Foreign Trade (Development and Regulation) Act, 1992.

Industrial Policy and Procedure Policy for Foreign Investment Contract Act. Foreign Exchange Management Act.

1999 SEBI Guidelines, Regulations, Notifications & Circulars.

Reserve Bank of India (RBI) Guidelines, Regulations, Notifications & Circulars.”

Who can set up a Joint Venture:

The following people are permitted under Indian law to set up a joint venture:

1. A non-resident entity can invest in India subject to foreign direct investment policy barring some prohibited sectors which include the strategic important sectors.
2. A company, trust, and partnership firm incorporated outside India and owned and controlled by NRIs can invest in India with the special dispensation as available to NRIs under the FDI Policy.
3. Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms and conditions specified in Schedule II of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
4. Foreign Investment is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.

Foreign Investment:

Joint Venture is a great way to bring money to one's country and it helps the company to grow exponentially but their structure can be complex. There should be excellent strategy to make the venture successful. Moreover, the success of joint ventures depends upon the communication, policies and the type of ownership along with the laws related to them. But on the other hand, it has to be kept in check so that the sovereignty of the nation remains intact. Currently, India, UAE and Singapore are hosting many successful Joint Ventures which are giving valuable thrust to the economy. The market for foreign investment and shares market is very wide and diverse.

Comparing Laws of Joint Ventures:

A joint venture (JV) is a strategic business arrangement where two or more parties collaborate to achieve a specific goal while sharing control over the venture. In India, the legal framework for joint ventures is primarily outlined in the Companies Act, 2013. According to this Act, a joint venture is considered a joint arrangement in which the parties involved share joint control and have rights to the net assets of the venture. When it comes to the legal structure of a joint venture, there are generally two main approaches: forming a separate legal entity or establishing a purely contractual agreement. Let's delve into each approach and how they are treated in India compared to the UAE & Singapore:

1. Laws with respect to Separate legal entity in India, UAE & Singapore:

There are two ways through which a joint venture can be established:

1. Separate Legal Entity

Forming a separate legal entity for a joint venture involves creating a distinct company or partnership. This new entity has its own legal identity, separate from the parties involved. For Instance, there are two companies, Company A and Company B, decide to collaborate on a large-scale infrastructure project. They form a new company, Joint Venture Ltd., to handle the project. Joint Venture Ltd. will operate as an independent entity, with its own management team, financials, and legal obligations. If the project is successful, Joint Venture Ltd. can continue to operate or take on new projects even after Company A and Company B complete their initial objective.

2. Contractual Agreement:

Alternatively, the parties can opt for a contractual joint venture, where they agree to collaborate based on a contract without forming a new legal entity. For Instance, Let’s suppose Company C and Company D want to jointly develop a new product. Instead of forming a new company, they enter into a contractual agreement to share resources and expertise for the duration of the project. Once the product is developed and marketed, the contract can be terminated, and the venture ends. This allows both companies to part ways easily without the complications associated with maintaining a separate legal entity.

In all the three countries India, Singapore and the UAE, the choice between creating a separate legal entity and relying on a contractual agreement for joint ventures is flexible and depends on the needs of the parties involved.

• India: Under the Companies Act, 2013, joint ventures can be structured either as a new company or through contractual arrangements. The legal framework supports both approaches, providing options based on the venture's objectives and duration.
• UAE: Similarly, UAE law allows for joint ventures to be established as separate legal entities or through contracts. The UAE's legal environment is also accommodating of both structures, making it possible for parties to choose the option that best aligns with their strategic goals.
• Singapore: Joint Ventures in Singapore are regulated by the Companies Act, Contract Law, Tax law among others. There is no single legislation for the Ventures just like India but rather they are governed by a host of laws. The interesting thing to note in this regard is there are no general requirements under Singapore Law to file the requisite formation documents of a joint venture with any competent authority. If a Joint Venture is not classified as a merger under section 54 of the companies Act, still section 34 of the same would limit anti-competitive agreements. In simple terms, the competition in the market is reduced. If the Joint Venture is in the form of a contract, then the parties are free to deliberate upon the law to which they want to be subjected. However, the JV’s created under some statutory provision will be subjected to the rules of that Statute. The two main authorities that look into the matters concerning Joint Venture operations in Singapore are the Accounting and Corporate Regulatory Authority (ACRA) and the Competition Commission of Singapore (CCS).

Thus, the decision hinges on whether the parties seek long-term continuity and formal structure

or prefer a flexible, goal-oriented collaboration. Top of Form

'Bottom of Form'2. Foreign Ownership restrictions:

India: [FDI]

In India, joint ventures are a viable option for foreign companies, particularly in sectors where 100% Foreign Direct Investment (FDI) is not permitted. This approach allows foreign entities to collaborate with local partners to gain market access and share resources. The Indian government has established various regulations and incentives to facilitate foreign investment, though certain sectors still impose FDI limits.

Ownership and Capitalization: Foreign companies often use joint ventures to circumvent sector-specific ownership restrictions. In most cases, capital for these ventures is raised primarily through share capital, which involves issuing shares to investors. This method provides a stable source of funding and aligns with Indian corporate practices.

UAE:

The UAE presents a more complex landscape for foreign companies seeking to establish joint ventures due to its stringent ownership regulations. Generally, a company in the UAE must be at least 51% owned by UAE nationals, although this rule varies based on the type of business and the specific Emirate.

Free Zones and Ownership: To attract foreign investment, the UAE has established numerous free zones where foreign companies can retain 100% ownership. However, these free zones come with their own set of regulations and restrictions, which can affect operational flexibility and business scope.

Capital Introduction: In the UAE, joint ventures often raise capital through loans rather than share capital. This approach can be advantageous when immediate capital is required, offering a quicker alternative to increasing share capital. The preference for loans over equity financing is prevalent, particularly when swift capital infusion is necessary.

Singapore:

Singapore's foreign investment policy contrasts with the more restrictive environments in India and the UAE. The country is known for its open and favourable stance toward foreign investment, with minimal restrictions on the amount of investment that foreign companies can make.

Ownership and Investment: Foreign companies, whether listed or unlisted, face fewer barriers in Singapore. The country only regulates a few sectors, allowing foreign investors substantial freedom in establishing and capitalizing joint ventures. This openness supports Singapore's reputation as a global business hub, attracting significant foreign investment and fostering a dynamic market environment.

3. Laws with respect to dispute settlement:

When it comes to resolving disputes in joint ventures, all three countries i.e. India, Singapore and the UAE provide flexibility in choosing the preferred method of dispute resolution. However, there are specific qualifications and considerations that parties should be aware of.

1. 1. India

In India, parties involved in a joint venture can select their preferred mode of dispute resolution, whether it be arbitration, mediation, or litigation. If the disputing parties are both Indian, Indian law will govern the resolution process. Indian courts will generally uphold the jurisdictional stipulations outlined in the contract, meaning they will enforce the agreed-upon dispute resolution mechanism if it is in accordance with Indian legal standards.

However, there are instances where Indian courts might be reluctant to relinquish jurisdiction in favour of a foreign forum. This reluctance is often based on considerations of convenience or the connection of the dispute to India. In other words, even if the contract specifies a foreign jurisdiction for dispute resolution, Indian courts might still assert their jurisdiction if they deem it more suitable given the circumstances of the case.

1. 2. UAE:

Similarly, in the UAE, parties to a joint venture have the freedom to choose the applicable law and dispute resolution method. This flexibility allows them to select from various options such as arbitration or litigation under the laws of their choosing. Nevertheless, for corporate joint ventures, the UAE's statutory provisions will apply. This means that, while parties can agree on certain aspects of dispute resolution, they must also comply with UAE company law provisions.

A notable point is that UAE courts have shown a tendency to be cautious about enforcing foreign judgments that conflict with UAE company law. This reluctance stems from the courts' commitment to uphold local legal principles and ensure that any judgments align with the UAE's statutory regulations.

4. Minority Rights:

When it comes to joint ventures with a separate legal identity, the protection of minority shareholders' rights varies significantly between India and Singapore. These differences are primarily reflected in the processes for shareholder resolutions and legal remedies available to minority stakeholders.

India

In India, minority rights are protected through several mechanisms, particularly under the Companies Act, 2013. One notable feature is the requirement for special resolutions, which necessitate a 75% majority of shareholders for certain significant corporate actions.

Additionally, Indian law provides remedies for minority shareholders who feel oppressed or excluded. Under the Companies Act, 2013, minority shareholders can seek judicial intervention if they believe their interests are being unfairly prejudiced. The courts have the authority to order remedies, including the winding up of the company on just and equitable grounds, if the company's conduct is deemed unjustly detrimental to minority stakeholders.

Singapore

In Singapore, minority shareholder rights are similarly safeguarded, but the mechanisms differ slightly. While special resolutions also require a 75% majority for certain significant corporate actions, the emphasis is placed on statutory provisions and corporate governance practices to protect minority interests.

Singaporean law provides minority shareholders with rights to challenge decisions and seek remedies through the courts. Key protections include the ability to bring claims for "oppression" under the Companies Act, which allows shareholders to seek relief if the company's actions are oppressive or unfairly prejudicial to their interests. However, the approach to these protections and the remedies available may differ in practice compared to India, reflecting Singapore's distinct legal and regulatory framework

Comparative Analysis:

“One doesn't have to be a large corporation to benefi­t from the advantages of volume. This can also be achieved through joint ventures.” - Norbert Reithofer

Being well aware of the advantages of the joint ventures the countries provide easy regulations and offer significant convenience, to integrate their countries into the global economy. These incentives facilitate the establishment and operation of joint venture projects, encouraging international collaboration and investment. This not only brings in money in the economy but also provides employment to the people. The easy the regulations the more the investment. Thus, to provide companies with maximum opportunity and to foster the economic growth the countries try to maximize their potential through JV’s but as we see there are some restrictions and regulations which are essential as the companies are prone to exploit the country for their maximum profit and it can be detrimental for small business and startups. Today the government are solely focusing on the establishment of global economy neglecting the small startups but a balanced approach is required to make country a success which is to say that although the joint ventures are important but the government needs to check the small startups as well. As we can see above the easiest norms are given to JVs by Singapore which has least no. of startups. Thus, we need to have a balanced approach.