JV / SPV Structuring

A joint venture structured as a private limited company is governed by the Companies Act 2013 (Sections 42, 62, and 186 for equity issuance and inter-company transactions) and offers clearer shareholder agreements, board-level governance, and easier exit via share transfer. An LLP JV is governed by the Limited Liability Partnership Act 2008 and is generally more flexible on profit-sharing arrangements (which need not be proportionate to capital contribution), but LLPs cannot issue equity to foreign partners via the automatic FDI route in all sectors — foreign participation in an LLP requires RBI approval under FEMA NDI Rules 2019, Schedule VIII, and is restricted to sectors with 100% FDI under the automatic route. For cross-border JVs, the private limited company structure under the Companies Act is overwhelmingly preferred because it permits FC-GPR reporting under FEMA Notification No. 20(R) and is recognised by DTAA treaty networks for relief from double taxation.

When a foreign company acquires shares in an Indian company (making it a JV), the Indian company must file Form FC-GPR with the authorised dealer bank within 30 days of allotment of shares, as required under Regulation 4 of the FEMA (Mode of Payment and Reporting in case of Investment in India by a Person Resident outside India) Regulations 2016. The filing must be accompanied by the KYC documents of the foreign investor, a CS certificate on compliance with applicable laws, a valuation certificate from a SEBI-registered merchant banker or CA confirming that the issue price is not less than fair market value under the DCF method or book value as per ICAI guidelines (for unlisted companies). If an existing shareholder transfers shares to the foreign investor rather than a fresh allotment, Form FC-TRS must be filed within 60 days of the transfer under FEMA NDI Rules 2019, Rule 9(11).

Foreign Direct Investment in an Indian SPV for real estate construction and development projects is permitted under the FDI Policy (Consolidated FDI Policy 2020, paragraph 5.2.18) subject to specific conditions: minimum capitalisation of USD 5 million for jointly developed projects; at least 50% of the project must be developed within five years of obtaining all statutory clearances; and repatriation of original investment is not permitted before three years from the completion of minimum capitalisation. 'Real estate business' involving buying and selling of completed property remains prohibited under the FDI Policy, so the SPV must be an active construction/development entity. The SPV must also comply with RERA (Real Estate Regulatory Authority) registration under the Real Estate (Regulation and Development) Act 2016 for projects above the applicable threshold, and foreign investors' approval via FEMA NDI Rules 2019 Schedule I applies.

Deadlock provisions are not governed by the Companies Act 2013 itself (which does not mandate JV agreement terms), but the agreement must interact correctly with the statutory framework. Common deadlock mechanisms include: (a) a 'shoot-out' or Texas shoot-out clause where one party offers to buy the other's shares at a stated price and the other party can elect to buy at that same price; (b) casting vote rights given to an independent director or chairperson under Section 167-read-with-AOA provisions; or (c) mandatory arbitration under the Arbitration and Conciliation Act 1996 with a pre-agreed arbitral institution. The Companies Act 2013 under Section 241 also allows an oppressed minority shareholder to approach the NCLT for relief, but this is litigation, not a structured exit. Any buyout must comply with Section 62 or 66 (capital reduction) and any pricing must satisfy FMV requirements if a foreign party is involved under FEMA NDI Rules 2019.

If the Indian JV company and the Indian parent/promoter entity are 'associated enterprises' as defined in Section 92A of the Income-tax Act 1961 (typically where one entity holds 26% or more voting power in the other, or both are under common control), all transactions between them may constitute 'specified domestic transactions' under Section 92BA if the aggregate value exceeds ₹20 crore in the relevant financial year. In that case, management fees and royalties must be at arm's length, documented per Rule 10D, and reported in Form 3CEB certified by a CA. If either party to the JV is non-resident, all international transactions — including management service fees, royalties, and cost-sharing arrangements — are subject to full transfer pricing regulations under Sections 92 to 92F and must be benchmarked using prescribed methods under Rule 10B. The royalty rate must also not exceed the rates specified in any applicable DTAA royalty article to avoid double taxation.