Every entrepreneur looks for opportunities to increase its market reach and generate higher revenues in a short amount of time. While some may consider options such as acquiring a competitive business or business mergers as permanent solutions. Although, businesses looking for temporary solutions for business growth, may also consider entering into a joint venture in Chandigarh.
A joint venture (JV) is a commercial arrangement entered between two or more business enterprises with an objective to combine their resources to gain a tactical and strategic edge in the market for a shorter period to pursue specific projects. In the Joint venture (JV), each party is accountable for the costs incurred and profits/losses earned due to the arrangement. However, the joint venture is a separate entity from the other business interests of its participants.
A joint venture has been a common phenomenon across the Indian business Industry for ages in India. They are used across business sectors whereby Indian parties agree to cooperate with other Indian parties/ies to form a domestic joint venture or where one party is an Indian and the other one is a foreign entity and a cross-border joint venture is formed. Joint ventures in Chandigarh have brought tremendous success and growth in pursuance of such collaborations.
Some of the popular joint ventures in the country include names like Hindustan Aeronautics Ltd. (HAL), which has entered into various joint ventures with foreign companies like Rosoboronexport, Aviazapchast and Mikoyan-Gurevich (MiG) of Russia, British Aerospace and Rolls Royce Holdings Ltd of UK, Merlin-Hawk and Edgewood Ventures of the USA, Elbit Systems, Israel and Snecma of France. Similarly, the airline Vistara is a joint venture between India’s corporate giant Tata Sons and Singapore Airlines (SIA).
Joint Ventures in Chandigarh- Meaning & Definition
Basically, a joint venture happens when two or more businesses agree to work with each other to combine their strengths and limit their shortcomings to fulfill any objective or complete any project, which is in the form of a mutual understanding between two or more participants established on commercial terms & conditions. Joint ventures are usually formed by two businesses with complementary strengths. For example, a technology company may enter into a partnership with a marketing company to bring an innovative business product into the market or a foreign company may enter a joint venture with a domestic company to enter a new market and sell their products in such domestic markets.
While each start-up continues to maintain a separate business structure and legal status, creating a new joint venture is a collectively owned entity that is at the arm’s reach of the parent companies. Any number of companies or individuals may collaborate to create a joint venture that could include all types of business structures including self-employed individuals, Limited Liability Partnerships (LLPs), and Limited companies.
Generally, Joint ventures are created with a limited time frame or a definite outcome, they could also be created for a continuing purpose that ideally benefits all the parties, helps business to expand and grow or provide an additional stream of revenue that had not been possible otherwise. They could combine larger and smaller companies to take on either one or several bigger, or smaller projects and deals.
But, joint ventures should not be confused with the merger as there are several fundamental differences between the two. Firstly, where there is the transfer of ownership effectuated between the partners in a merger, no ownership is transferred in a joint venture. Further, in case a merger deal happens, both the parties continue to carry out business operations as one single firm rather than two separate firms. On the other hand, a joint venture happens when two firms continue to carry out their business operations but form a separate entity.
Therefore, a joint venture could dramatically increase the scale of operations and reach of the business while reducing business risks at the same time. However, without proper knowledge, it could be riskier for start-ups and could cause harm to both the parties involved. Therefore, the article below provides all about joint ventures in Chandigarh, the process of entering a JV, and its pros and cons for a business.
Chandigarh is a union territory in India and is the capital of its neighbouring states, Punjab and Haryana. Chandigarh is among the early planned cities and is internationally famous for its architecture and urban designs. Mohali and Panchkula are the Metropolitan areas of Chandigarh. According to the 2011 Indian census, the total population of Chandigarh is 1,055,450, and the City’s population density is about 9,252 persons per square kilometer. Chandigarh has a sex ratio of 818 females for every thousand males. While English is the state’s sole official language, Hindi and Punjabi are the other two most spoken languages in Chandigarh.
Chandigarh was declared the third-largest deposit center and seventh-largest credit center nationwide by the Reserve Bank of India in 2012; that’s why it is counted among the wealthiest towns in India. Chandigarh has three government bases – Chandigarh administration, Punjab government, and Haryana government. The city has three government bases, and that’s why the government is a significant employer in the City. Even the people residing in Chandigarh are mainly those who were working for these governments or are the retired government officials or Army officials. Because of this reason, the Chandigarh is also known as ‘Pensioner’s Paradise.’
The prominent industries in Chandigarh are paper manufacturing, metal, alloy, pharmaceuticals, food products, sanitaryware, etc. Trade and businessis the main occupation in Chandigarh. Many prominent Indian firms and multinational corporations, including EVRY, Dell, Tech Mahindra, Airtel, etc., have established their bases in the City and its suburbs.
The startup ecosystem in Chandigarh
Before discussing the startup ecosystem of Chandigarh, you must know what a startup is. In simple words, a startup is a business still in its initial growth stage. Chandigarh is a Union Territory, and it is also the capital of Punjab and Haryana. Economically, Chandigarh is the highest-income town and the most well-planned and cleaner City in India. If roughly estimated, Chandigarh has 2500 plus small-scale businesses, which means that the startup ecosystem of Chandigarh is quite supportive.
This startup policy of Chandigarh was officially released by the government of Chandigarh in 2017 with a vision to create a world-class startup ecosystem in the City. As already cleared by the Chandigarh government that it wants to make a world-class startup ecosystem, the union territory has mainly focused on Information Technology. It would be fostered through strategic investments and policy interventions.
To build a strong startup ecosystem, the government is leveraging the entrepreneurial spirit in the City to attract young people to become an entrepreneur. The nodal agency responsible for developing the startup ecosystem is the ‘Industries Department of the Chandigarh government.’ Under the startup policy of the Chandigarh government, more than 80 startups are registered.
The aim of the startup policy of the Chandigarh government is to focus on –
• the development of Information Technology (IT) startups
• develop entrepreneurship through entrepreneurship development programs
• development of 50,000 square feet of incubation space
• provide hand-holding support to students and young entrepreneurs to launch their startups without any chaos.
The startup policy of the Chandigarh government has successfully shown impeccable performance in awareness and outreach.
Profit-making startup ideas in Chandigarh
Recycling Business
Chandigarh is among the clean cities in India, and that’s why the recycling business in Chandigarh is both economically and physically advantageous. Chandigarh’s recycling business provides many investment opportunities that involve construction, waste recycling devices, recycling cell phones, composting laptops, reusing, and other digital item recycling. If you are a nature lover and have decent money, you can invest in the recycling business as it will yield high profits.
Food processing Business
The majority of cereals generated are not consumed in their raw form by the customers, so through food processing, the gross material is converted into simple to prepare food. The food processing business has a wide scope in Chandigarh. Chandigarh produces bushels of grain, rice, and corn each year which means that they need to process the cereals for customers’ consumption. Food processing units need simple investment and can help you earn long-term profits.
Livestock Farming
Chandigarh is incomplete without milk, creamy lassi, and butter so livestock farming in Chandigarh is also a good idea. Livestock farming consists of a significant proportion of Chandigarh’s economic development. Chandigarh government is very determined to promote livestock farming. The government provides appropriate livestock medical care facilities and the ability to augment livestock numbers by establishing a semen bank.
Restaurants
The cuisines of Chandigarh are very creamy and spicy as they consist of lassi, chole bhature, parantha, and Amritsari kulcha. Chandigarh has a very delicious cuisine that attracts tourists. So, opening a restaurant in Chandigarh is an excellent idea. The traditional Punjabi food is loved by tourists and can help you in making profits. To open a restaurant in Chandigarh, you need a reasonable investment. Besides this, you need to have enough money to run the restaurant for at least six months without any profits. Though the profit earning will be late, this will surely provide you with a long-term and stable business.
Information Technology
The network connectivity of Chandigarh and its connectivity with states like Haryana, Punjab, Delhi, and Himachal Pradesh attract the IT pool of talent and IT companies. Many prominent IT companies are looking to establish their base and offices in Chandigarh. Chandigarh and its suburbs are a significant home to Indian and international companies. So, starting an information technology business is a perfect idea because you can start a small company in information technology with a reasonable amount of investment.
Types of Joint Ventures in Chandigarh
i. Equity-based Joint Ventures in Chandigarh-Under an Equity-Based Joint Venture the parties to the JV create an independent legal entity following the mutual understanding between two or more parties. These parties or partners agree to provide investment or other resources by way of their contribution to the capital or assets of the corporate entity. This structure is an ideal choice for long-term, broad-based joint ventures, and includes joint venture companies and joint venture limited liability partnerships (LLPs).
ii. Contractual-based Joint Venture in Chandigarh–Contractual-based Joint Venture (JV) does not require the creation of a new and independent legal entity to work on a specific project or for a special purpose. This type of agreement is favored in situations involving a temporary task or for a limited activity or where a joint venture needs to be established for a limited term or a franchisee enters into a Joint Venture agreement for just this one project, while both the businesses shall continue to carry on their work.
iii. Incorporated & Unincorporated JVs in Chandigarh-Further, JVs in Chandigarh could also be incorporated or unincorporated. In case a joint venture is incorporated in nature, it is recognized as a separate entity in the eyes of law in the form of any limited company (private /public) under the Companies Act, 2013 or a limited liability partnership under the Limited Liability Partnership Act, 2008, which could be established by way of setting up a new entity or investing in an existing entity.
However, in case the joint venture is unincorporated, they are more contractual and used by parties to meet their mutual business interests and enter into collaboration with one another for a common goal but prefer to remain loosely associated with the other parties. Unincorporated joint ventures in Chandigarh could take the form of unregistered partnerships, strategic alliances, contractual joint ventures, and consortiums in general.
While the benefits of an incorporated joint venture over an unincorporated joint venture include separate legal status, limited liability for parties to the joint venture, perpetual succession, clear structure for accounting and governance, etc. the same benefits are not available in the case of unincorporated JV.
Key Considerations for entering into a Joint Venture in Chandigarh
The key factors to determine the structure of a joint venture in Chandigarh include a mixture of commercial considerations and regulatory requirements. The most common of them being-
i. The proposed business activities of the joint venture company in Chandigarh (i.e. Manufacturing, project execution, services, or trading).
ii. The period for the proposed period of collaboration;
iii. Limitation of Liability exposure to the parties concerned subject to the nature of the business of the joint venture entities and the degree of risk associated with them;
iv. the proposed structure of management and the involvement of the parties to the
v. joint venture in the management of the JV;
vi. Proposed requirement of capital and flexibility for accessing financing options;
vii. Proposed exit mechanisms from the joint venture and ease of exit for the joint venture parties;
viii. Tax implications; and
ix. Regulatory compliances to be followed;
How to enter a Joint Venture in Chandigarh?
i. The first step towards entering into a joint venture is through choosing the right partner that suits your business requirements which is a crucial tool of success for any JV.
ii. After one or more partners have been selected and agreed to enter into the venture, a memorandum of understanding (MoU) or a letter of intent is to be signed by the parties emphasizing the foundation of the future joint venture agreement.
iii. Then, an MoU must be entered by the concerned parties after consulting a CA firm in practice, who shall be versed in all applicable rules & regulations such as the Foreign Exchange Management Act 2000, the Companies Act, 2013, Income-Tax Act 1961, and all other rules, regulations, and procedures.
iv. A joint venture agreement must be acknowledged and signed by all the parties to the joint venture agreement that must include the following clauses-
- Applicable laws & regulations;
- Shareholding pattern;
- Composition of board of directors;
- Management Committee;
- Board Meeting, its venue & frequency
- General meeting, its venue & frequency
- The quorum for the validity of key decisions at board meetings;
- Transfer of shares;
- Dividend policy;
- Change of control & buy-out rights
- Restriction/prohibition on assignment;
- Non-compete restrictions;
- Confidentiality;
- Indemnity;
- Non-Disclosure of Information
- Jurisdiction for dispute resolutions;
- Termination criteria and notice.
- The exit of a Partner
- Dissolution of JV
v. Each party must carefully assess all the terms and conditions before signing the contract for which the cultural and legal background of the parties must be studied for negotiations.
vi. The JV union must obtain all the government and regulatory approvals and permissions within the specified period and then form a legal business entity under MCA guidelines which could be grouped into two classes – companies owned or controlled by foreign investors, and companies owned and controlled by Indian residents.
What are the pros & cons of entering into a Joint venture in Chandigarh?
Joint ventures in Chandigarh can be complicated arrangements, but they offer strong advantages to businesses, some of which include-
Pros of Entering Joint Venture in Chandigarh
i. Combined strengths & expertise in Chandigarh– An effectively established joint venture leverages both the parties to the joint venture by combining their collective strengths and diluting their weaknesses, helping them to get the best of both worlds.
ii. Temporary in nature in Chandigarh – Joint ventures are usually created for a limited period, which means that they enjoy the flexibility to work for the period temporarily and could simply tie up and exit the joint venture if things do not work out.
iii. Diversification and scale in Chandigarh– Joint ventures allow the partners to operate at larger scales than their possibilities, which means that they have access to better resources, technical knowledge, more effective distribution networks, and the ability to enter a new market without actually having to develop new products and services from scratch and expensing costs & time to the market.
iv. Pooled risk in Chandigarh– Each business involved in the joint venture shares an equal proportion of risk with each party working towards a mutual goal. Thus, creating a joint venture could dilute the risks of losses that otherwise have to be sustained by a party alone for business failures.
v. New sources of revenue in Chandigarh– Usually, smaller businesses often face difficulties due to limited resources and limited access to projects as compared to their competitors. Entering into a joint venture with a comparatively larger company could enhance its financial resources to help it grow dynamically over a short period. Also, the more extensive streams of revenue could provide the smaller firm with larger &diversified revenue streams.
vi. Intellectual property advantages in Chandigarh– It is difficult for businesses to create advanced innovative technologies in-house always. Thus, entering into a JV with tech-efficient firms could help a business to get access to the IPRs without having to incur additional time or costs in the development of such assets or purchase licenses for use. Thus, a smaller innovative business with advanced technologies but limited funds and a large firm with access to financing could benefit each other through a joint venture for the development of
vii. Synergy benefits in Chandigarh– Joint ventures could offer synergy benefits similar to those provided under mergers & acquisition deals, which may include either financial synergy causing a reduction in costs of capital or operational efficiency due to the two businesses working with each other. Similarly, parties to a joint venture could also enjoy economies of scale for their business.
viii. Improved credibility in Chandigarh– Typically, it may take a long period for a business to grow its business and earn market credibility and a consumer base organically. However, entering into a joint venture with a business brand that has already established its goodwill in the market could help them to attain boosted market presence and credibility more quickly.
ix. Creating Barriers to competition in Chandigarh– Finally, one of the key reasons for businesses to consider entering into a joint venture is through avoidance of competition and pricing pressure in the market. Creating collaboration with other start-ups could help them to set rigid barriers for competitors making it even more difficult to penetrate the marketplace.
Cons of Joint Ventures in Chandigarh
However, some JVs in Chandigarh may prove to be disadvantageous for the business causing a drain on resources and harming operations for both parent companies. Others may include-
i. Differences due to Culture clash in Chandigarh- While it is common for a domestic company to enter a JV with a foreign business, some of them may struggle to reach an agreement due to cultural differences, processes, and approaches when two companies work together. Accordingly, differences in management skills and abilities, conflicting HR processes, and workplace cultures may make it harder for a JV to give fruitful results.
ii. Poor Decision Making in Chandigarh- Trust is vital for any business relationship and any lack of trust could make decision-making more difficult if both parties need to sign off decisions ultimately leading to the failure of the business.
iii. Risk of dissemination of sensitive information in Chandigarh- Since, there are high chances of the partners having access to sensitive business information that may include intellectual property or trade secrets, etc. Thus, this information lies at risk of being disclosed to any third party which may lead the other party to suffer heavy losses.
iv. Restriction in Flexibility in Chandigarh- For every business to flourish in the area of its expertise, there is required of flexibility in its working structure. However, due to the higher risks of costs and expenses involved, the involved partner businesses lose the flexibility of work in their course of forming a new business entity.
v. Restricts other opportunities in Chandigarh- Generally, a Joint venture agreement restricts the outside similar business activities of the companies involved, while the project is in progress, it limits the parties to look for other business opportunities.
vi. No Limited Liability in Chandigarh- One of the biggest shortcomings of a joint venture is that an unincorporated structure has no means to offer protection of limited liability to the businesses involved.
vii. Uneven Involvement in Chandigarh- Usually, it is seen that the parties to a Joint-venture share the same level of involvement in the project concerned. For instance, where one company in the JV is responsible for the production of goods while the other is accountable for sales & promotional activities, the responsibilities of each company differ from each other, thus it may create discontent among parties sometimes.
Joint Venture Compliance Requirements in Chandigarh
Every joint venture in Chandigarh must disclose and submit a report of its ultimate beneficial ownership under various applicable laws and regulations, especially under the provisions of the Companies Act, 2013 (the Companies Act) and the Prevention of Money Laundering Act, 2002 (PMLA), as applicable. Companies (Significant Beneficial Owners) Rules, 2018, envisages concepts of ‘beneficial interest’, ‘significant beneficial owner’, and ‘significant influence’ in the context of companies which is dependent upon factors degree of shareholding, voting rights, dividend entitlement, and power to participate in the financial and operating policy decisions of the company.
Further, joint ventures in Chandigarh involving inflow & outflow of foreign exchange shall be subject to strict rules & regulations prescribed under the provisions of the Foreign Exchange Management Act, 1999 (FEMA) under the provisions of the Reserve Bank of India (RBI).
Exiting a joint venture in Chandigarh
While some joint ventures in Chandigarh are of continuing nature, most of them are for a defined period and come to an end once the objective of the agreement comes to an end. But, for a Joint venture to come to end smoothly, each one must have an effective exit strategy in place.
Exit Strategies are a key part of the JV agreement that includes the manner of sale of assets, buy-out strategies & rights by one partner from the other. It also includes the details of the notice period one party is required to give to the other if desired, resolution of disputes, and offering either party right of first refusal to buy the other partner out. Typically, there may be one or more reasons leading to the exit of a partner, including-
- On committing a serious breach of the agreement.
- Serious differences due to conflicts
- .Fulfilment of the purpose for which the JV was entered.
- Insolvency of the exiting partner
Thus, Joint Venture Agreements are an effective means to achieve business growth and enjoy business profits long term. The reasons behind forming a joint venture may be improving business operations, developing new products or services, entering new markets or access to greater capacity and resources, or better marketing & development channels. But, above all, provide companies with a platform to come together and pool their finances, ideas, and resources to develop a specific project one may have strong potential for growth and you may have innovative ideas and products while the other may have better finances or any other required resource.
However, the parties to Joint Venture in Chandigarh must consider creating and signing a well-drafted agreement that governs the parties involved in the agreement including provisions for termination for default and making good the losses sustained by one party due to the other.
