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FOREIGN COLLABORATIONS and JOINT VENTURES

FOREIGN COLLABORATIONS and JOINT VENTURES. By Krishna Sharan Mishra Company Secretary & Trade Marks Attorney +91-9884041418; krishna@ksmassociates.net www.ksmassociates.net. Two kinds of Foreign Collaborations. INBOUND FOREIGN COLLABORATIONS AND OUTBOUND FOREIGN COLLABORATIONS.

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FOREIGN COLLABORATIONS and JOINT VENTURES

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  1. FOREIGN COLLABORATIONSandJOINT VENTURES By Krishna Sharan Mishra Company Secretary & Trade Marks Attorney +91-9884041418; krishna@ksmassociates.net www.ksmassociates.net

  2. Two kinds of Foreign Collaborations INBOUND FOREIGN COLLABORATIONS AND OUTBOUND FOREIGN COLLABORATIONS

  3. INBOUND FOREIGN COLLABORATIONS(Inbound JVs) Structuring of Inbound Joint Ventures • Foreign Direct Investments (FDI) • Foreign Technology Agreements • Foreign Investment through GDRs/ADRs/FCCBs • Foreign Investment through Preference shares • Foreign Investment through convertible debentures Stages of JVs • To decide whether Equity JV or Contractual JV • Negotiate a JV Agreement • Drafting of JV Agreement

  4. Foreign Direct Investment Automatic Route • Within prescribed sectoral caps • No approval of RBI/CG required • Invst in equity/fully convertible pref shares/deb • In new ventures/existing companies Approval Route (Government Route) • Proposals requiring Industrial Licence • Foreign Invst of >24% in equity of SSIs. No bar if status given up alongwith 50% export obligation. • Existing venture/tie up in India by Foreign collaborator in the same field of Investee Indian Co • If investor is OCB • If in excess of sectoral caps/non-permitted sectors

  5. ……FDI Prohibitions: • Investment in any form prohibited in 5 sectors; in the form of FDI, is prohibited in 10 sectors • OCBs (meaning Company/firm/society/other corporate body with 60% of NRI holdings (Trusts included) can make only with prior approval of RBI (if otherwise under automatic route)/CG(if otherwise under govt route) • Citizens/entity of Pakistan cannot make investments in India • Citizens/entities of Bangladesh only with FIPB approval

  6. Foreign Technology Agreements Automatic Approval • Where lump sum payments do not exceed USD 2 mn. • Royalty limited to (i) 5% for domestic sales (ii) 8% for exports; total payment not to exceed 8% of sales over 10 years (no restriction on duration for payt by WOS to its offshore parent company). • Period of royalty payment does not exceed 7 yrs from commencement of production OR 10 yrs from date of agreement, whichever is earlier. • If for use of brand name (without technology transfer) then royalty not to exceed 2% for exports & 1% for domestic sales

  7. …Foreign Tech Agmt Approval Route (Government Route) • Proposals requiring Industrial Licence • Items of manufacture reserved for SSIs • Existing venture/tie up in India by Foreign collaborator in the same field of Investee Indian Co • Proposals not meeting parameters for automatic approval Eligible Payments • Payment for technical knowhow fees/design & drawing/ engineering services/royalty • Payt for hiring of foreign technicians/deputation of Indian technicians abroad/testing of indigenous raw materials, products, indigenous technology in foreign country are not covered (being regulated by separate RBI procedures) • Imports of P & M and raw materials not covered.

  8. JOINT VENTURE AGREEMENTS NEGOTIATING A JV AGREEMENT DRAFTING OF JV AGREEMENT IMPORTANT CLAUSES KINDS OF RESTRICTIVE PRACTICES

  9. Negotiating a JV Agmt Purpose of JV • Well defined objective • Understand, identify and define Contributions by parties • Parties are more than a passive investor in JV • Hence range of possible contributions broader • Include finance, services, tangible & intangible property rights, functional expertise, experience, contacts, obtaining supplies/customers

  10. …..Negotiating Capital Structure • Includes determination of share capital, borrowings, debentures, pref shares Management, Control & Administration • Includes determination of Board structure; key officers; voting rights; reserved matters Continuity of JV • Includes pre-emption rights; identification of new partner; compensations while pulling out

  11. ……Negotiating Issue of further Capital • Important to maintain proportion of capital contributed • Hence, unanimous consent of Board Operational Issues • The JV agmt should provide for the manner in which operational issues are to be dealt with • Issues like borrowing, expansion, diversification, dividend policy, investment in other companies.

  12. Drafting of JV Agmt • Difficult to prepare a universally applicable set frame of terms and conditions • Factors to be kept in mind: Capability of Collaborator; clear definitions of technical terms; Quality control; payment of royalties, rates, calculation; force majeure; training of personnel by collaborator; arbitration clause; payment of interest on delayed payments.

  13. Restrictive clauses/practices

  14. OUTBOUND INVESTMENTS

  15. Thank you Information contained in the presentation is for general guidance. The application and import of laws can vary widely based on specific facts involved. The presentation doesn’t constitute professional advise from the Author. The presentation should not be used as a substitute for consultation with professional advisors. Before making any decision or taking any action, you should take professional advice.

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