a joint venture in thailand

8/9/2019 A Joint Venture in thailand

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A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time,a new entity and new assets by contributing equity. They exercise control over the enterprise andconsequently share revenues, expenses and assets. There are other types of companies such as Jlimited by guarantee, !oint ventures limited by guarantee with partners holding shares.

"ith individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular pro!ect, such partnership can also be called a !ointventure where the parties are #co-venturers#.

The venture can be for one specific pro!ect only $ when the J is referred to more correctly as aconsortium (as the building of the %hannel Tunnel) $ or a continuing business relationship. Theconsortium J (also &nown as a cooperative agreement) is formed where one party see&stechnological expertise or technical service arrangements, franchise and brand use agreements,management contracts, rental agreements, for one$time contracts. The J is dissolved when thatgoal is reached.

'ome ma!or !oint ventures include ow %orning, iller%oors, 'ony *ricsson, +ens&e Truc&easing, -orampac, and wens$%orning.

A !oint venture ta&es place when two parties come together to ta&e on one pro!ect. /n a !ointventure, both parties are equally invested in the pro!ect in terms of money, time, and effort to build on the original concept. "hile !oint ventures are generally small pro!ects, ma!orcorporations also use this method in order to diversify. A !oint venture can ensure the success ofsmaller pro!ects for those that are !ust starting in the business world or for establishedcorporations. 'ince the cost of starting new pro!ects is generally high, a !oint venture allows both parties to share the burden of the pro!ect, as well as the resulting profits.

'ince money is involved in a !oint venture, it is necessary to have a strategic plan in place. /nshort, both parties must be committed to focusing on the future of the partnership, rather than !ustthe immediate returns. 0ltimately, short term and long term successes are both important. /norder to achieve this success, honesty, integrity, and communication within the !oint venture arenecessary.

Preparation

1ormulating the J is a series of steps, one which needs a lot of wor& and yet, at the same time, precision. ne can here only underline the steps or information that will be needed by the J

candidate. They are2

• the ob!ectives, structure and pro!ected form of the !oint venture, including the amount of

investment and financing arrangements and debt

• the J3s products, their technical description and usage

http://en.wikipedia.org/wiki/Dow_Corninghttp://en.wikipedia.org/wiki/MillerCoorshttp://en.wikipedia.org/wiki/Sony_Ericssonhttp://en.wikipedia.org/wiki/Sony_Ericssonhttp://en.wikipedia.org/wiki/Penske_Truck_Leasinghttp://en.wikipedia.org/wiki/Penske_Truck_Leasinghttp://en.wikipedia.org/wiki/Penske_Truck_Leasinghttp://en.wikipedia.org/w/index.php?title=Norampac&action=edit&redlink=1http://en.wikipedia.org/wiki/Owens-Corninghttp://en.wikipedia.org/wiki/MillerCoorshttp://en.wikipedia.org/wiki/Sony_Ericssonhttp://en.wikipedia.org/wiki/Penske_Truck_Leasinghttp://en.wikipedia.org/wiki/Penske_Truck_Leasinghttp://en.wikipedia.org/w/index.php?title=Norampac&action=edit&redlink=1http://en.wikipedia.org/wiki/Owens-Corninghttp://en.wikipedia.org/wiki/Dow_Corning


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• alternate production technologies

• estimated cost of equipment

• estimated product price(s)

• costing

• mar&et analysis for the product, inside and outside the 3territory3

• analysis of competition

• pro!ected sales and methods of distribution

• details of offered site, including output pro!ections, transport and warehousing, testing

and quality control, by$products and waste4$ supply, utility, and transport requirements4

• estimated technology transfer costs

• foreign exchange pro!ections (where applicable)

• staff requirements and training

• financial pro!ections

• environmental impact

• social benefit

Partner selection

"hile the following offers some insight to the process of !oining up with a committed partner toform a J, it is often difficult to determine whether the commitments come from a &nown anddistinguishable party or an intermediary. This is particularly so when the language barrier existsand one is unfamiliar with local customs, especially in approaches to government, often thedeciding body for the formation of a J or dispute settlement.

The ideal process of selecting a J partner emerges from2

• screening of prospective partners

• short listing a set of prospective partners and some sort of ran&ing


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• due diligence 5 chec&ing the credentials of the other party

• availability of appreciated or depreciated property contributed to the !oint venture

• the most appropriate structure and invitation6bid

• foreign investor buying an interest in a local company

%ompanies are also called Js in cases where there are dominant partners together with participation of the public. There may also be cases where the public shareholding is substantial but the founding partners retain their identity. These companies may be 3public3 or 3private3companies. /t would be out of place to describe them, except to say there are many in /ndia.

1urther consideration relates to starting a new legal entity ground up. 'uch an enterprise issometimes called 3an incorporated J3, one 3pac&aged3 with technology contracts (&nowhow, patents, trademar&s and copyright), technical services and assisted$supply arrangements.

The consortium J (also &nown as a cooperative agreement) is formed where one party see&stechnological expertise or technical service arrangements, franchise and brand use agreements,management contracts, rental agreements, for 3one$time3 contracts, e.g., for construction pro!ects.They dissolve the J when that goal is reached.

Feasibility study

A nascent J pro!ect outlines2

•the partners

• the ob!ectives and structure of the J

• investment and financing arrangements

• product(s) and description and usage, output

• production technology

• equipment required and costs

• technology transfer costs

• cost$benefit analysis

• mar&et analysis


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• analysis of competition

• details of the site

• transport and warehousing

• by$products and waste

• supply, utility, and transport requirements

• foreign exchange pro!ections

• staff requirements and training

/ts feasibility, besides its profitability, is assessed (in terms of government control over the J)

by considering it, along with the Articles which will regulate it, by its strength or wea&nessfactors (for the economy or the country) in aspects such as2

• the quality of the technology $ its appropriateness to the national infrastructure, exports,

etc.

• value to national economy and other contributions (i.e., labor intensity, environment

factors, utility usage, #greeness# of the technology), waste$treatment and disposal

• capability of recipient to absorb the technology

• cost of the technology and competitiveness

• supporting strengths (trademar&s, patents, &now$how, copyrights in case of /T)

• limits imposed (by its supplier) on the use or non$use of the technology.

Company incorporation

A J can be brought about in the following ma!or ways2

• 1oreign investor buying an interest in a local company

• ocal firm acquiring an interest in an existing foreign firm

• 7oth the foreign and local entrepreneurs !ointly forming a new enterprise

• Together with public capital and6or ban& debt


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/n the 0.8 and /ndia $ and in many %ommon aw countries $ a !oint$venture (or else a companyformed by a group of individuals) must file with the appropriate authority the emorandum ofAssociation. /t is a statutory document which informs the outside public of its existence. /t may be viewed by the public at the office in which it is filed. A sample can be seen at wi&imedia.orgTogether with the Articles of Association, it forms the 3constitution3 of a company in these

countries.

The Articles of Association regulate the interaction between shareholders and the directors of acompany and can be a lengthy document of up to 9::,:::; pages. /t deals with the powersrelegated by the stoc&holders to the irectors and those withheld by them, requiring the passingof ordinary resolutions, special resolutions and the holding of *xtraordinary


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• aluation of intellectual rights, say, the valuations of the /+= of one partner and,say, the

real estate of the other

• the control of the %ompany either by the number of irectors or its #funding#

• The number of directors and the rights of the founders to their appoint irectors whichshows as to whether a shareholder dominates or shares equality.

• management decisions $ whether the board manages or a founder

• transferability of shares $ assignment rights of the founders to other members of the

company

• dividend policy $ percentage of profits to be declared when there is profit

•

winding up $ the conditions, notice to members

• confidentiality of &now$how and founders3 agreement and penalties for disclosure

• first right of refusal $ purchase rights and counter$bid by a founder.

There are many features which have to be incorporated into the 'hareholders Agreement whichis quite private to the parties as they start off. -ormally, it requires no submission to anyauthority.

The other basic document which must be articulated is the Articles which is a published

document and &nown to members.

This repeats the 'hareholders Agreement as to the number of irectors each founder can appointto the (see 7oard of irectors). "hether the 7oard controls or the 1ounders. The ta&ing ofdecisions by simple ma!ority (>:?;@) of those present or a >@? or 9>? ma!ority with allirectors present (their alternates6proxy)4 the deployment of funds of the firm4 extent of debt4 the proportion of profit that can be declared as dividends4 etc. Also significant is what will happen ifthe firm is dissolved4 one of the partner dies. Also, the 3first right3 of refusal if the firm is sold,sometimes its puts and calls.

ften the most successful Js are those with >:2>: partnership with each party having the same

number of irectors but rotating control over the firm, or rights to appoint the %hairperson andice$chair of the %ompany. 'ometimes a party may give a separate trusted person to vote in its place proxy vote of the 1ounder at 7oard eetings.

=ecently, in a ma!or case the /ndian 'upreme %ourt has held that emorandums of0nderstanding (whose details are not in the Articles of Association) are #unconstitutional# givingmore transparency to underta&ings.

http://en.wikipedia.org/wiki/Puts_and_callshttp://en.wikipedia.org/wiki/Puts_and_calls


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Chinese Law

/t is interesting to study the !oint$venture laws of %hina because they are of recent vintage and because such a unique law exists.

According to a report of the 0nited -ations %onference on Trade and evelopment ::B, %hinawas the recipient of 0'C>B.> billion in direct foreign investment, ma&ing it the world3s largestrecipient of direct foreign investment for the first time, to exceed the 0'A. Also, it approved theestablishment of nearly >::,::: foreign$investment enterprises. The 0' had D>,::: pro!ects (by::D) with an in$place investment of over DE billion.

0ntil @FDF, no guidelines existed on how foreign investment was to be handled due to therestrictive nature of %hina toward foreign investors. 'ince ao Gedong initiatives in foreigntrade began to be applied, and law applicable to foreign direct investment was made clear in@F9F, the first 'ino$foreign equity venture too& place in ::@. The corpus of the law hasimproved since then.

%ompanies with foreign partners can carry out manufacturing and sales operations in %hina andcan sell through their own sales networ&. 1oreign$'ino companies have export rights which arenot available to wholly %hinese companies, as %hina desires to import foreign technology byencouraging Js and the latest technologies.

0nder %hinese law, foreign enterprises are divided into several basic categories. f these, fivewill be described or mentioned here2 three relate to industry and services and two as vehicles forforeign investment. Those > categories of %hinese foreign enterprises are2 the 'ino$1oreign*quity Joint entures (*Js), 'ino$1oreign %o$operative Joint entures (%Js), "holly1oreign$wned *nterprises ("1*), although they do not strictly belong to Joint entures, plus

foreign investment companies limited by shares (1/%7'), and /nvestment %ompanies through1oreign /nvestors (/%1/). *ach category is described below.

Euity joint ventures

The *J aw is between a %hinese partner and a foreign company. /t is incorporated in both%hinese (official) and in *nglish (with equal validity), with limited liability. +rior to %hina3sentry into "T 5 and thus the "1*s 5 *Js predominated. /n the *J mode, the partnersshare profits, losses and ris& in equal proportion to their respective contributions to the venture3sregistered capital. These escalate upwardly in the same proportion as the increase in registeredcapital.

The J contract accompanied by the Articles of Association for the *J are the two mostfundamental legal documents of the pro!ect. The Articles mirror many of the provisions of the Jcontract. /n case of conflict the J document has precedence These documents are prepared atthe same time as the feasibility report. There are also the ancillary documents (termed #offsets#in the 0') covering &now$how and trademar&s and supply$of$equipment agreements.


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The minimum equity is prescribed for investment (truncated), where the foreign equity and debtlevels are2

• less than 0'CB million, equity must constitute 9:? of the investment4

• between 0'CB million and 0'C@: million, minimum equity must be 0'C.@ million andat least >:? of the investment4

• between 0'C@: million and 0'CB: million, minimum equity must be 0'C> million and

at least D:? of the investment4

• more than 0'CB: million, minimum equity must be 0'C@ million and at least @6B of the

investment.

There are also intermediary levels.

The foreign investment in the total pro!ect must be at least >?. -o minimum investment is setfor the %hinese partner. The timing of investments must be mentioned in the Agreement andfailure to invest in the indicated time, draws a penalty.

Cooperative joint ventures

%o$operative Joint entures (%Js) are permitted under the 'ino$1oreign %o$operative Jointentures. %o$operative enterprises are also called %ontractual perative *nterprises.

The %Js may have a limited structure or unlimited 5 therefore, there are two versions. Thelimited$liability version is similar to the *Js in status of permissions $ the foreign investor

provides the ma!ority of funds and technology and the %hinese party provides land, buildings,equipment, etc. However, there are no minimum limits on the foreign partner which allows himto be a minority shareholder.

The other format of the %J is similar to a partnership where the parties !ointly incur unlimitedliability for the debts of the enterprise with no separate legal person being created. /n both thecases, the status of the formed enterprise is that of a legal %hinese person which can hire labordirectly as, for example, a %hinese national contactor. The minimum of the capital is registered atvarious levels of investment.

ther differences from the *J are to be noted2

• A %o$operative J does not have to be a legal entity.

• The partners in a %J are allowed to share profit on an agreed basis, not necessarily in

proportion to capital contribution. This proportion also determines the control and theris&s of the enterprise in the same proportion.


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• /t may be possible to operate in a %J in a restricted area

• A %J could allow negotiated levels of management and financial control, as well as

methods of recourse associated with equipment leases and service contracts. /n an *Jmanagement control is through allocation of 7oard seats.

• uring the term of the venture, the foreign participant can recover his investment,

provided the contract prescribes that and all fixed assets will become the property of the%hinese participant on termination of the J.

• 1oreign partners can often obtain the desired level of control by negotiating management,

voting, and staffing rights into a %J3s articles4 since control does not have to beallocated according to equity sta&es.

%onvenience and flexibility are the characteristics of this type of investment. /t is therefore easier to find co$operative partners and to reach an agreement.

"ith changes in the law, it becomes possible to merge with a %hinese company for a quic& start.A foreign investor does not need to set up a new corporation in %hina. /nstead, the investor usesthe %hinese partner3s business license, under a contractual arrangement. 0nder the %J, however,the land stays in the possession of the %hinese partner.

There is another advantage2 the percentage of the %J owned by each partner can changethroughout the J3s life, giving the option to the foreign investor, by holding higher equity,obtains a faster rate of return with the concurrent wish of the %hinese partner of a later larger roleof maintaining long$term control.

The parties in any of the ventures, *J, %J or "1* prepare a feasibility study outlined above./t is a non$binding document $ the parties are still free to choose not to proceed with the pro!ect.The feasibility study must cover the fundamental technical and commercial aspects of the pro!ect, before the parties can proceed to formaliIe the necessary legal documentation. The studyshould contain details referred to earlier under 1easibility 'tudy (submissions by the %hinese partner).

!holly Foreign "wned Enterprises #!F"Es$

There is basic law of the +=% concerning enterprises with sole foreign investment controls,"1*s. %hina3s entry into the "orld Trade rganiIation ("T) around ::@ has had profound

effects on foreign investment. -ot being a J, they are considered here only in comparison orcontrast.

To implement "T commitments, %hina publishes from time to time updated versions of its3%atalogs /nvestments3 (affecting ventures) prohibited, restricted.


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The "1* is a %hinese legal person and has to obey all %hinese laws. As such, it is allowed toenter into contracts with appropriate government authorities to acquire land use rights, rent buildings, and receive utility services. /n this it is more similar to a %J than an *J.

"1*s are expected by +=% to use the most modern technologies and to export at least >:? of

their production, with all of the investment is to be wholly provided by the foreign investor andthe enterprise is within his total control.

"1*s are typically limited liability enterprises (li&e with *Js) but the liability of theirectors, anagers, Advisers, and 'uppliers depends on the rules which govern theepartments or inistries which control product liability, wor&er safety or environmental protection.

An advantage the "1* en!oys over its alternates is the protection to its &now$how but a principal disadvantage is absence of an interested and influential %hinese party.

As of the Brd uarter ::D the "1*s had replaced *Js and %Js as follows2

istribution Analysis of J in /ndustry $ +=%

Type J %&&& %&& %&&% %&&( %&&) #(*r$

"1* DK.F >:.B K:. K.D KK.E

*J,? B>.E BD.9 :.D F.K K.F

%J,? @>.F @.F F.K 9. >.

isc JL @.D .@ @.E @.E @.@

%Js (-o.)LL @9B> @>EF @>F> @>D9 FFK

(L)M1inancial entures by *Js6%Js (LL)MApproved Js

Foreign +nvestment Companies Limited ,y Shares #F+CL,S$

These enterprises are formed under the 'ino$1oreign /nvestment Act. The capital is composed ofvalue of stoc& in exchange for the value of the property given to the enterprise. The liability ofthe shareholders, including debt, is equal to the amount of shares purchased by each partner.

The registered capital of the company the share of the paid$in capital. The minimum amount ofthe registered capital of the company should be =7 B: million. These companies can be listedon the only two +=% 'toc& *xchanges 5 the 'hanghai and 'henIhen 'toc& *xchanges. 'hares of two types are permitted on these *xchanges 5 Types NAO and Type N7O shares.

Type A are only to be used by %hinese nationals and can be traded only in =7. Type N7Oshares are denominated in =emembi but can be traded in foreign exchange and by %hinesenationals having foreign exchange. 1urther, 'tate enterprises which have been approved forcorporatiIation can trade in Hong 8ong in NHO share and in -P'* exchanges.


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NAO shares are issued to and traded by %hinese nationals. They are issued and traded in=enminbi. N7O shares are denominated in =enminbi but are traded in foreign currency. 1romarch ::@, in addition to foreign investors, %hinese nationals with foreign currency can alsotrade N7O shares.

+nvestment Companies by Foreign +nvestors #+CF+$

7rief coverage is provided.

/nvestment %ompanies are those established in %hina by sole foreign$funded business or !ointlywith %hinese partners who engage in direct investment. /t has to be incorporated as a companywith limited liability.

The total amount of the investor3s assets during the year preceding the application to do businessin %hina has to be no less than 0' C D:: million within the territory of %hina. The paid$in capitalcontribution has to exceed C @: million. 1urthermore, more than B pro!ect proposals of the

investor3s intended investment pro!ects must have been approved. The shares subscribed and held by foreign /nvestment %ompanies by 1oreign /nvestors (/%1/) should be >?. The investmentfirm can be established as an *J.

Joint ventures in +ndia

+ntroduction

/ndia has an open philosophy on capital mar&ets, and it closely parallels its *nglish peers inoperation. The 7ombay 'toc& *xchange (7'*) has close to >,::: listed shares, and trades inseveral thousand more, ma&ing it the largest stoc& exchange in the world. The -ational 'toc&*xchange is the other exchange at present. *nglish is one of the preferred languages of themar&et, and its policies are first announced in *nglish.

The /ndian people are s&illed and entrepreneurial by nature as evident in world mar&ets, but in/ndia, less than @? of its billion population at present 5 that is, only @@ million people 5representing B? of households invest in the mar&et.

+eople who wor& the mar&et in other languages are adept in recogniIing concepts in derivativesand futures contracts and trade in them. /ndia is one of three countries that has supercomputers,one of six that has satellite launching facilities and has over @:: 1ortune >:: companies doing=Q in the country.

/ndia does not restrict the repatriation of investments, dividends, profits and if need be, the principal, through the single autonomous entity, the =eserve 7an& of /ndia (=7/). The /ndiancurrency (the rupee) is @::? convertible for earnings at free$mar&et rates.

/ndia3s new policies (described below) have resulted in aggregate foreign investment flowinginto /ndia, increasing from 0'C@:B million in @FF:$F@ to 0'[email protected] billion in ::96::E.


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Liberali-ation o. policy

/ndia3s basic outlines of industrial development were framed by +andit Jawaharlal -ehru in@F>K, ma&ing the private sector a participant in development, but giving the public sector adominant position.

However, by the early @FF:s, the situation in the world economies turned2 Japan entered a phaseof stagnancy of growth, the pace of the #Asian tigers# slowed, as did the *uropean economy.7ut, also, the country3s balance of payments crisis.

To counteract these effects a new policy was born in July @FF@, the reformed -ew /ndustrial+olicy (-/+). /t and later modifications (further liberaliIation) streamlines procedures,deregulated industrial licensing, and vastly expanded the role for the private sector, whileshrin&ing the +ublic 'ector. Also, anti$trust laws (the onopoly and =estrictive +ractices Act)were trimmed and customs duties for industrial goods slashed. The restrictive 1oreign *xchange =egulation Act (1*=A) was replaced by the 1oreign *xchange anagement Act (1*A).

/ndustrial policy divided industry into three categories2

• those that would be reserved for public$sector development,

• those under private enterprise with or without 'tate participation, and

• those in which investment initiatives would ordinarily emanate from private

entrepreneurs.

nly six industries are exclusively reserved for the public sector2 trading (except single$brand

retailing), agricultural or plantation activities, housing and real estate business (exceptdevelopment of townships), atomic energy, gambling or betting6lottery business, and retailconstruction of residential6commercial premises, roads or bridges are on the negative list forforeign participation.

/utomatic licensing and administered licensing

/ndia3s investment policy, as of April :@:, is presented at the site. 7riefly, /ndia allowsinvestments both through 1oreign irect /nvestment (1/), meant for long$term controllinginvestments and +ortfolio /nvestment 5 ta&ing a position by buying shares of a company 5 whichis li&ely short$term capital mar&et operation. 1oreign /nstitutional /nvestors (1//s) from reputable

institutions (li&e pension funds, mutual funds) may (and do) participate in the /ndian capitalmar&ets.

/ndustrial approvals are automatic (=7/ approval of investment) for most manufacturingindustries with equity investment up to >@? foreign control and as of @FF9 to 9D? in certainselect industries ('ee the current policy highlighted above). 1or another BK sectors there arevarying limits without output restrictions. =7/ approvals come within two wee&s for the investedentity. /nvestments can flow to the country prior to approvals for such cases. *ven in sectors

http://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Balance_of_payments


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limited to >@?, a higher level of control, up to 9D?, is feasible if approach is made to the1oreign /nvestment +romotiomn 7oard (1/+7) 5 thus, #administered# licensing. /nvestments upto @::? are allowed in power generation, coal washeries, electronics, an *xport riented 0nit(*0) in the *+G3s.

-=/ (-on$=esident /ndians), +/ (+eople of /ndian rigin), and %7s (verseas %ommercial7odies) have relaxed accommodation

/ndustrial licensing of the @F>@ policy is applicable to NAnnex //O (not shown here) industrieswhich revolve around certain &ey natural resources. /t is administered through 1/+7.

Joint venture companies

J companies are the preferred form of corporate investment but there are no separate laws for !oint ventures. %ompanies which are incorporated in /ndia are treated on par as domesticcompanies.

• The above two parties subscribe to the shares of the J company in agreed proportion, in

cash, and start a new business.

• Two parties, (individuals or companies), incorporate a company in /ndia. 7usiness of one

party is transferred to the company and as consideration for such transfer, shares areissued by the company and subscribed by that party. The other party subscribes for theshares in cash.

• +romoter shareholder of an existing /ndian company and a third party, who6which may be

individual6company, one of them non$resident or both residents, collaborate to !ointly

carry on the business of that company and its shares are ta&en by the said third partythrough payment in cash.

+rivate companies (only about C>:: is the lower limit of capital, no upper limit) are allowed in/ndia together with and public companies, limited or not, li&ewise with partnerships. sole proprietorship too are allowed. However, the latter are reserved for -=/s.

Through capital mar&et operations foreign companies can transact on the two exchanges without prior permission of =7/ but they cannot own more than @: percent equity in paid$up capital of/ndian enterprises, while aggregate foreign institutional investment (1//) in an enterprise iscapped at D percent.

The establishment of wholly owned subsidiaries ("') and pro!ect offices and branch offices,incorporated in /ndia or not. 'ometimes, it is understood, that branches are started to test themar&et and get its flavor. *quity transfer from residents to non$residents in mergers andacquisitions (QA) is usually permitted under the automatic route. However, if the QAs are insectors and activities requiring prior government permission (Appendix @ of the +olicy) thentransfer can proceed only after permission.


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Joint ventures with trading companies are allowed together with imports of secondhand plantsand machinery.

/t is expected that in a J, the foreign partner supplies technical collaboration and the pricingincludes the foreign exchange component, while the /ndian partner ma&es available the factory

or building site and locally made machinery and product parts. any Js are formed as publiclimited companies (%s) because of the advantages of limited liability.

Js are expected in the nuclear industry following the -'< waivers for nuclear trade. Thenuclear power industry has been witnessing several Js. The country has set an imposing targetof achieving an installed capacity of :


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1or the automatic route, =7/ allows2

ump sum payments not exceeding 0'C million.

=oyalty payable is limited to >? for domestic sales and E? for exports, without any restriction

on the duration of the royalty payments. The royalty limits are net of taxes and are calculatedaccording to standard conditions. +ayments are made through =7/.

The royalty is calculated on the basis of the net ex$factory sale price of the product, exclusive ofexcise duties, minus the cost of the standard bought$out components and the landed cost ofimported components, irrespective of the source of procurement, including ocean freight,insurance, custom duties, etc.

/ssue of equity shares against lump sum fees and royalty fees is permitted.

1or exceeding this norm, the firm has to approach 1+7/.

+ndia's legal system

/ndia is a common law country with a written constitution, guaranteeing individual and propertyrights.

There is a single hierarchy of courts.

Arbitration can be in /ndia or /nternational %ommercial Arbitration.

The country has recently enacted the Arbitration and %onciliation Act, @FFK (#-ew aw#). The

-ew aw is based on the 0nited -ations %ommission on /nternational Trade aw (0-%/T=A)odel aw on /nternational %ommercial Arbitration (odel aw).

All agreements are under /ndian laws.

/rticles o. /ssociation

/ntroduction

The Articles of Association determine how a company is run. /t is a set of 3by$laws3 which formthe 3constitution3 of the %ompany. /t is often required by aw to be part of the Joint$ enture

agreement. 'ome clauses relating to the following may be absent. "here this the case, it isassumed that the provisions as laid out in the in %ompany aw apply. The Articles can cover amedley of topics, almost all of which is required in a country3s law. Although all will not bediscussed, it can cover2

• aluation of intellectual rights, say, the valuations of the /+= of one partner and,say,the

real estate of the other


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• The appointments of directors $ which shows whether a shareholder dominates or shares

equality.

• directors meetings $ the quorum and percentage of vote

• management decisions $ whether the board manages or a founder

• transferability of shares $ assignment rights of the founders or other members of the

company

• special voting rights of a %hairman,and mode of election

• dividend policy $ percentage of profits to be declared when there is profit

• winding up $ the conditions, notice to members

• confidentiality of &now$how and founders3 agreement and penalties for disclosure

• first right of refusal $ purchase rights and counter$bid by a founder.

'ome agreements mention that the Articles of Association as given in %ompany aw apply to theagreement except where specifically differing4 and others say, explicitly, that they do not bindthat the agreement and that it contains all legally acceptable bye$laws. The typical Articles in an/ndian +ublic 'ector %ompany are given in.

A %ompany is essentially run by the shareholders, but for convenience, and day$to$day wor&ing,

by the irectors. The shareholders elect the directors at the Annual


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access. /t cannot be changed except at an A


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• egal or financial issues

• *volving mar&et conditions mean that !oint venture is no longer appropriate or relevant

• ne party acquires the other

a joint venture in thailand

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