Pros and Cons of Joint Ventures in India
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The joint venture agreement which is entered into for a specific purpose is generally referred to as consortium. The best example of this of this can be the consortium formed by upstream oil companies at the time of bidding sessions of NELP. There are various reasons for a company to prefer a joint venture agreement before going for undertaking big projects. JVs are generally entered into for high profit and high risk businesses. For e.g. going for exploration of an oil block obtained after bidding involves a lots of capital investment as well as latest technological know high and there is always a high risk of not getting oil in the block and income from the block starts only after oil is discovered in the block otherwise all the losses have to be borne by the investor alone. Therefore before bidding for the block, several oil companies form a consortium and sign a memorandum of understanding and then together go for final bidding. Another reason for entering into a joint venture agreement is FDI. In 1991, Indian economy was liberalized and foreign investment was allowed and now in most of the sectors foreign investment up to 100% is allowed except some sectors where it is not at all allowed (nuclear sector, agriculture sector) or where prior permission from govt. is required. In such a situation although fiscal incentives succeeded to attract foreign players to the domestic market but their unawareness about the regulatory and policy framework of India compelled them to enter into JVs with Domestic players for a better understanding of the domestic market as well as structural and regulatory framework of the country. This also benefitted them as they did not have to struggle much for the customers as the customers of the domestic players automatically became their customers.
Below are some of the advantages and disadvantages of the JV agreement system:
1)A joint venture agreement provides great opportunities to develop and improve in terms of capital and technological know-how. With the help of it, companies not only increase their capacity but also gain expertise in various fields.
1) Due diligence as well as sincere efforts are required to enter into the right relationship. Entering into partnership with other business may be challenging if:
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