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 Dehradun, Uttarakhand.
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 Dehradun, Uttarakhand 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand, the process of entering a JV, and its pros and cons for a business.
Uttarakhand is officially known as Uttaranchal till 2007. Uttarakhand’s name is derived from the scriptures’ Sanskrit words, i.e., Uttara means ‘north’ and Khanda means ‘land.’In short means’ Northern Land’. As per the historical Hindu scriptures, Uttarakhand is a combined region of “Kedarkhand” (At present known as Garhwal) & “Manaskhand” (At present known as Kumaon). Uttarakhand is located in the northern part of India. Uttarakhand is also named “Devbhumi” (which means the Land of the Gods). It is named so because of its cultural and religious significance and due to the presence of various Hindu temples and pilgrimage sites found across the state. Uttarakhand is a well-known and enthralling tourist place, especially due to the natural environment of the Himalayas, the Bhabar, and the Terai regions.
This state shares its international boundaries with Tibet (an autonomous region of China) in the north, Nepal (Sudurpashchim Province) in the east, and National boundaries with Uttar Pradesh in the south and Himachal Pradesh in the west and northwest. Uttarakhand constitutes 86% mountainous and 65% covered area by forest. The Jim Corbett National Park(launched in 1973) is India’s oldest and most prestigious national park. This state ranks 20th in terms of the country’s population growth with the contribution of 0.83% of the population on 1.63% of the land. Demographically, various languages are spoken, but among them, the Hindi language is mainly spoken by the native people of Uttarakhand. However, based on place of origin in the Garhwal and Kumaon region, Garhwali and Kumaoni are also spoken, respectively.
Uttarakhand’s beauty is inherent in things like the huge mountains of the Himalayas, the sacred rivers, the spiritual regime, stunning and enchanting landscapes, the colorful resonating rhythms of nature, and exhilarating history molded in the ancient stones, a mesmerizing evergreen flora, and fauna. Hence, these things make Uttarakhand a perfect place for nature enthusiasts, mountaineers, bike riders, rock climbers, spiritually elevated fanatics, and many more. Apart from being an enthralling tourist spot, Uttarakhand is also blessed as a goldmine for anthropologists, historians, linguists, geologists, etc. In terms of economy, Uttarakhand is India’s 2nd fastest-growing state, and agriculture is one of the major contributing sectors of the economy of Uttarakhand.
Capital- Gairsain (Summer) and Dehradun (Winter)
Top Business Ideas in Uttarakhand
Uttarakhand is one of the best tourist destinations in North India. Uttarakhand is a highly exhilarating state and credible state to seek the attention of various investors and entrepreneurs. Thereby it attracts several opportunities to spend time in the lap of nature. Uttarakhand is well-known among the best Indian states on the kernel of providing ease of doing business. As per the latest records of the growth of the Uttarakhand manufacturing sector, it accounts for 33% of the State GSDP. Uttarakhand is ranked 1 in the list published by the Export Preparedness Index 2020.
Adventure Tourism Business
Uttarakhand is known for its great mountains of the Himalayas, elegant rivers, various holy pilgrimage sites, and many more. Due to this, it attracts many tourists and adventure enthusiasts interested in sports such as rock climbing, skiing, ice skating, sailing, parasailing, canoeing, yachting, trekking, mountaineering, kayaking, and hiking, and various other favorite adventure sports such as paragliding, skydiving, rafting, and bungee jumping. You can develop an adventure sports business idea to utilize this potential of Uttarakhand, and this is a lucrative business idea with a promising future.
Fish Farming Business
Fish Farming is an essential contributor to the economy of Uttarakhand. Besides the agriculture and tourism industries, Fish farming is also an integral part of the state’s economy. Some of the most in-demand and grown fishes are Mulley, Monstrous Goonch, Tangra, Indian Trout, Butchwa, etc. Hence, this fishing business requires specialized knowledge, necessary skills, and careful monitoring skills. This commercial fish farming business is gradually increasing its business venture globally.
Restaurant Business Idea
Uttarakhand is a place for nature lovers and adventure enthusiasts. Hence, it considerably aggregates India’s most famous hill stations such as Mussorie, Nainital, Dhanaulti, Lansdowne, Sattal, Almora, Kausani, Bhimtal, Pauri, and Ranikhet. Apart from this, Uttarakhand has 12 National Parks and Wildlife Sanctuaries, such as Jim Corbett National Park(2nd oldest), Rajaji National Park, Nanda Devi National Park, Gangotri National Park, Valley of Flowers National Park, etc. These national parks and wildlife sanctuaries comprise 13.8 percent of the state’s total area. Here, you can set up a restaurant with the essence of regional inclusion of food specialty to serve the tourists (native and foreign) as well as the local people. First, set up a small business at a specific tourist hotspot, then stretch the reach to different stations as productivity blooms.
Startup Ecosystem in Uttarakhand
The Uttarakhand state has tipped the performance of India’s growth in the startup ecosystem by providing immense opportunities, incentives, and credible support to the startups. The citizens and the inhabiting students are inspired to lead this entrepreneurship, and the state of Uttarakhand regularly provides alternative endeavors to create a productive environment for innovative and creative business ideas.
The major benefit aspect is that the state is providing the ease of doing business which is supported by various vital institutions, including government departments, namely the Directorate of Industries at the state level and the District Industries Centers (DIC) at the district level is set up to cultivate business reforms and ideas in Uttarakhand. Besides this, The State industrial Development Authority (SIDA) holds the obligation of regulating, controlling, and providing a sustainable industrial development parameter in the state to maintain the decorum of uniformity, stability, and harmony.
As well as prominent educational institutions like the Indian Institute of Technology – Roorkee, Indian Institute of Management (IIM)- Kashipur, and National Institute of Technology (NIT) provide a platform for students to evolve as entrepreneurs. The State of Uttarakhand published its Startup Policy in 2018 and purposefully replaced the policy broadcast in 2017. This Uttarakhand Startup policy focuses on areas that benefit the state’s entrepreneurs in finding the best business ideas and promoting investment in incubation and startups. The state has established a body known as the startup council, which comprises the primarily selected members from government and private backgrounds, to monitor, regulate, maintain and implement the Startup Uttarakhand Initiative. The purpose or vision of this initiative is to stimulate the ecosystem to feed the spirit of entrepreneurship in the state.
Types of Joint Ventures in Dehradun, Uttarakhand
i. Equity-based Joint Ventures in Dehradun, Uttarakhand-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 Dehradun, Uttarakhand–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 Dehradun, Uttarakhand-Further, JVs in Dehradun, Uttarakhand 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 Dehradun, Uttarakhand 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 Dehradun, Uttarakhand
The key factors to determine the structure of a joint venture in Dehradun, Uttarakhand 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 Dehradun, Uttarakhand (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 Dehradun, Uttarakhand?
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 Dehradun, Uttarakhand?
Joint ventures in Dehradun, Uttarakhand can be complicated arrangements, but they offer strong advantages to businesses, some of which include-
Pros of Entering Joint Venture in Dehradun, Uttarakhand
i. Combined strengths & expertise in Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand – 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand– 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 Dehradun, Uttarakhand
However, some JVs in Dehradun, Uttarakhand 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand- 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 Dehradun, Uttarakhand
Every joint venture in Dehradun, Uttarakhand 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 Dehradun, Uttarakhand 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 Dehradun, Uttarakhand
While some joint ventures in Dehradun, Uttarakhand 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 Dehradun, Uttarakhand 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.
