What Is A Joint Venture?

A Joint Venture is a contractual agreement between two or more parties who come together to undertake a specific business project, sharing both profits and liabilities. It is a strategic business agreement. Both of these organisations pool their resources, capital assets and reputation or goodwill to create a competitive advantage in the market. 

Although Joint venture as a term does not find an explicit definition in the Companies Act, of 2013, it is mentioned in Section 2(6) of the Act which defines Associate Company. Joint ventures can be either incorporated or unincorporated. As per the Indian Partnership Act, of 1932, the registration of the company is not compulsory. The incorporation of the Company is done under Section 7 of the Companies Act, 2013.

 In New Horizons Ltd v. Union of India (1995) 1 SCC 478, the court held that a joint venture has been conferred with the status of a separate legal entity, which is distinct from its constituents who come together to form it. 

In M/s Rew Contracts Pvt Ltd v. Bihar State Power Transmission Co Ltd & Anr 2023 Livelaw (Pat) 41, the court remarked that when two parties come together to float a Joint Venture, which has a distinct legal entity, then further authorization to represent such a Joint Venture has to be made by the Joint Venture itself, according to the terms of its constitution. Hence, an Arbitration Agreement executed by a Joint Venture cannot be invoked by its constituents. 

Types Of Joint Ventures:

Joint ventures are either equity-based or contractual and are either under equal ownership or majority-minority ownership.

  1. Limited cooperation: When there is a limitation attached to the joint venture amongst the companies. For example, there can be an exclusive joint venture just for the distribution of products at a larger scale.
  2. Separate Joint venture business: The partners have a flexible option. The partners each own shares in the company and decide on how they want to manage the business.
  1. Business Partnership: Also known as a Limited liability partnership. The parties in this limit their liability to the extent of their investment, protecting their assets from the venture’s potential risk. 

Advantages Of Joint Ventures:

  1. Have access to resources: As a joint venture, the companies have the privilege to use the resources of both companies. This helps the companies to use the resources of the other company in which they might be lacking. This greatly increases the possibility of bringing in complementary skill sets and abilities of the venture. 
  1. Reduction in costs: Both the companies in the Joint venture can decrease the cost of production in comparison to being a single company. Other costs are also reduced such as advertising, and labour costs.
  1. Combination of experience: both companies can pool their own experience and help in the better reach of the company.
  1. To enter foreign markets: the joint venture agreements help in the supply of better resources which can help the company to grow more and finally achieve the aim of going into foreign markets.

Disadvantages Of Joint Venture: 

  1. Disagreements: When there is a joint venture amongst two or more companies, every decision then has to be taken with the special resolution of all the concerned authorities from both companies. This can often lead to disagreements among them. 
  2. Loss of commitment- the objectives under a venture become unclear and vague which are often difficult to understand. No matter what, it would be difficult to ensure that the distribution of the resources and the workload are equal. 
  3. Imbalance of the expertise: In a joint venture there is generally an imbalance between the division of resources and expertise amongst the companies. In a joint venture, it need not be necessary that both companies are equal in their status and size.
  4. Cultural clash: A joint venture is generally a culmination of not just two or more different organisations but also their cultures. While this improves the innovative solutions and workflow methods in a company, the employees of these companies might not be comfortable in accustomed to the techniques and processes of other organisations. 

Registration Of Joint Venture: 

After the companies decide via an agreement to enter into a joint venture, the process does not stop there. The companies have to register their joint venture. 

  1. Creation of a contract: when the registration of a joint venture takes place, the agreement has to lay down the terms and conditions such as the venture’s goal, management in charge etc. It should also lay down the rights and duties of each stakeholder. 
  2. Obtaining a legal review: The contract then has to be accessed by a lawyer who would look into the legal aspect of the contract and the rules and regulations to be attached. 
  3. Signing of the agreement: After the legal aspect is checked, the parties have to agree to the conditions and sign the contract. This signing would mark the approval of the contract in hand and hence finally making a joint venture. 
  4. Reporting the contract to concerned authorities: To make the Contract enforceable it has to be informed and submitted to relevant government institutions, such as the Registrar of Companies or the Ministry of Commerce. 
  5. Acquiring the licenses- Once the contract is reported and the approval is taken from the relevant authorities, the licences can be acquired with due process and permission. 
  6. Commencement of Operations: After all the formalities are completed, the joint venture can operate. 

Documents Required For A Joint Venture:

  1. Joint venture agreement 
  2. Identification proofs
  3. Certificate of incorporation 
  4. PAN cards 
  5. Bank details 
  6. Memorandum of Association 
  7. Proof of registered office 

Rendering The Agreement Invalid By Either Party- Section 56 Of The Indian Contract Act, 1872: 

According to Section 56 of the Indian Contract Act, of 1872, if in the event of force majeure or events that are beyond the control of the party, the agreement may be rendered invalid.

The party claiming the force majeure shall be exempted from performing the contract. 


Joint Venture is a strategic management whereby two or more companies come together by pooling their resources, experience or brand name to expand their market or receive investments in form of shares. Joint Venture has various pros and cons attached to it. However, a Joint Venture is not the only option available for a company, some of the other alternatives are mergers and acquisitions, wholly owned subsidiaries, licensing and franchising. Some of the examples of Joint ventures with Foreign companies are- Tata Starbucks Pvt. Ltd with Starbucks corporation of the USA, ICICI Prudential Life Insurance Company Ltd which is a joint venture between ICICI Bank and UK-based Prudential Corporation Holdings Ltd etc.

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