INTRODUCTION

What is a Joint Venture?

Polling of resources such as knowledge, investment, event management, technology,

infrastructure and other resources in order to work towards common corporate goal and
objective leads to the formation of a joint venture. Also, abbreviated as JV, a joint venture
usually has a goal of a strategic collaboration in the business realm, this strategic
collaboration could be undertaken for a specific project, or a business venture for a particular
period of time. This collaborative engagement of parties does not disturb the separate legal
identity and ownership arrangements of the parent companies.

In simple words, a Joint Venture can be described as a strategic alliance between two or more
parties for producing synergies, for pooling of complementary yet individual resources and
capabilities of parties to yield a mutually beneficial result. A key element that differentiates a
Joint Venture from an equity business or an asset acquisition is synergy.

Synergy simply put is combined effect of the individual resources that the parties bring to the
Joint Venture which should be greater and more valuable than the sum of their separate
effects. Hence it can be said that a joint venture model can be a great help in achieving of the
goals in an economical and time effective manner.

Let’s take a look into few examples of global level

Sony Ericsson

Sony a Japanese electronics company having expertise in consumer electronics and Ericsson
a Swedish telecommunications company having expertise in mobile telephony collaborated
under the name “Sony Ericsson” and the venture aimed to manufacture mobile phones and
other gadgets. This collaboration turned out to be the largest mobile phone manufacturer and
one of the most innovative devices produced by them was the Walkman. This particular Joint
Venture lasted for a decade until Sony acquired the shares of Ericsson in the year 2012.

NBC and Disney

NBC a subsidiary of Comcast and Disney a subsidiary of Walt Disney collaborated in the
year 2008 and launched a video streaming platform known as Hulu. This joint venture aimed
to provide a good video streaming platform for TV shows, films, and other content to be
watched on laptops and mobile phones. Till 2022 Hulu had more than 48 million subscribers
valued at over $25 billion.

STRUCTURES OF JOINT VENTURE

Two most common structures of implementing joint venture structures can be categorized
into two buckets.

1. Contractual or unincorporated JV: A contractual Joint venture is for a short-term project in

which the creation of a separate legal entity is not necessary. This type of JV structure is
considered to be more flexible and simple for business collaborations. The JV agreement or a
contract is the document that governs the partnership.

2. Equity JV: Collaborations for a specific business venture or a project by separate entities
either corporations or individuals where such collaborations are subjected to acquiring shares
or equity stakes of the venture in an agreed proportion.

WHY DO COMPANIES PREFER JOINT VENTURES?

Pooling of resources: The parties to the JV have a shared purpose that they desire to fulfill.
Generally, the purposes of JV’s are large and to carry out the purpose successfully the
business requires a wide array of resources. These businesses rely on resources from each
other such as substantial financial banking, technology, manpower, equipment, and sharing or
capabilities.

Risk Sharing: Every business fears financial risk hence a Joint Venture helps the partners in
JV to share the financial and operational risk. Risk sharing doesn’t overburden a single party
with all the financial risks helping in making the business fair and balanced and a less
daunting experience for the parties.

New Market Entry and Market Access: Entering a new market is a strategic approach that
is being followed by a company. This is a strategic way firms use to enter a new geographic
market, which will further help them target new and diverse customers.

WHAT LEADS TO A SUCCESSFUL JV?

1. A common goal of the partners: Every JV partner should have a common vision for
the JV. A common vision of the partners helps the JV function in a better way which
 further helps it to establish a good reputation in the market. JV partners with the same
goal will try to put in an equal amount of effort in the JV which will lead to faster
success.
2. Clear Communications: Communication is the key. Clear Communications has a
major role to play as it ensures transparency among the partners. Communications can
be in the form of regular meetings where progress can be discussed, new plans can be
put on the table, feedback reports shall be taken into consideration and discussed
promptly.
3. Strong Management: Good management means good leadership and better
application of policies. For a newly formed JV, it is essential to have a system which
aligns with the policies of the establishment and the goals of the partners. Smooth and
effective operation of the JV will lead to better standards of service by the JV which
will lead to a successful JV.
4. Fair and respectful negotiations: Respecting each other’s interests, rights and
contribution is an essential element when it comes to creating a successful JV. All the
gains, risks, rewards, and liabilities should be shared in a decent way by both partners.
No partner should create dominance over the other in the decision-making process of
the company.

BACKGROUND: Reliance Nippon Life Insurance Company

Reliance Nippon Life Insurance Company (RNLIC) is a leading life insurance company in
India, which is a part of the Reliance Group. RNLIC was formed in the year 2001 as a joint
venture between Reliance Capital Limited, a part of the Reliance Group, and Nippon Life
Insurance Company, one of the largest life insurance companies in Japan. The joint venture
was formed with a view to offering world-class life insurance products and services to Indian
customers.

The formation of RNLIC was a significant milestone in the Indian insurance industry as it
was one of the first private sector companies to enter the life insurance space after the
liberalization of the insurance sector in India in 2000. Before the liberalization, the Indian
insurance industry was dominated by state-owned insurance companies, which had a
monopoly in the market.

The joint venture between Reliance Capital and Nippon Life Insurance Company was a
strategic one, as it brought together the strengths of both companies. Reliance Capital had a
strong presence in the Indian financial services sector, with a wide distribution network and a
deep understanding of the Indian market. On the other hand, Nippon Life Insurance Company
had a rich experience in the life insurance industry, with a strong focus on customer-
centricity and product innovation.

The formation of RNLIC was a result of a rigorous process of due diligence and regulatory
approvals. The joint venture was approved by the Insurance Regulatory and Development
Authority of India (IRDAI) in 2001, and RNLIC started its operations in the same year. The
company started with a paid-up capital of Rs. 1,000 crore, with Reliance Capital holding a
74% stake and Nippon Life Insurance Company holding a 26% stake in the company.

Since its inception, RNLIC has been at the forefront of innovation in the Indian life insurance
industry. The company has a wide range of life insurance products, which cater to the diverse
needs of the Indian customers. The company has a strong focus on customer-centricity, and
its products are designed to provide maximum value to the customers.

Over the years, RNLIC has grown to become one of the leading life insurance companies in
India, with a strong presence across the country. The company has a wide distribution
network, which includes over 700 branches and more than 1,00,000 agents. The company has
also adopted a multi-channel distribution strategy, which includes bancassurance, corporate
agency, and direct sales.

RNLIC has won several awards and accolades for its performance and innovation in the
Indian life insurance industry. The company has been recognized as the 'Best Life Insurance
Company' by several leading publications and industry bodies. The company has also been
recognized for its customer-centricity and innovation, with several of its products winning
awards for their unique features and benefits.

In conclusion, the formation of Reliance Nippon Life Insurance Company was a significant
milestone in the Indian insurance industry. The joint venture between Reliance Capital and
Nippon Life Insurance Company brought together the strengths of both the companies and
resulted in the formation of a world-class life insurance company in India. Since its inception,
RNLIC has been at the forefront of innovation in the Indian life insurance industry, and has
grown to become one of the leading life insurance companies in the country.

LAW RELATED TO JOINT VENTURES IN INDIA

There are no specific laws regarding joint ventures in India. Certain laws come into play after
a joint venture is created. In India, the following laws govern joint ventures: 1
 Partnership Act of 1932: A contractual Joint Venture is controlled by the Partnership
Act of 1932 since it is similar to a legally binding partnership and no separate Legal
Entity is formed.
 Companies Act 2013: The Companies Act 2013 governs equity-based joint ventures
because they create a new legal entity, either public or private.

Other laws that govern joint ventures in India include:

 Competition Act, 2002.
 Foreign Trade (Development and Regulation) Act, 1992.
 Foreign Exchange Management Act of 1999.
 Securities and Exchange Board of India Act of 1999.
 Reserve Bank of India (RBI) of 1934.

Basic definitions in the Companies Act 2013 used in this report

Section 2 of the Companies Act 2013 is “definitions”. It defines the basic legal terms related
to companies.
 (5) ―articles means the articles of association of a company as originally framed or
as altered from time to time or applied in pursuance of any previous company law or
of this Act;2

1
LEGAL SERVICE INDIA, https://www.legalserviceindia.com/legal/article-7598-joint-venture-creation-and-
legal-liabilities.html#:~:text=Law%20governing%20the%20Joint%20Ventures%20in%20India
%3A&text=Equity%2Dbased%20Joint%20Ventures%20are,Competition%20Act%2C%202002 (last visited
Oct. 11, 2023).
2
The Companies Act, 2013, § 2 (5), No. 18, Acts of Parliament, 2013 (India).
  (6) ―associate company, about another company, means a company in which that
other company has a significant influence, but which is not a subsidiary company of
the company having such influence and includes a joint venture company.3
 (10) ―Board of Directors or ―Board, about a company, means the collective body of
the directors of the company;4
 (42) ―foreign company means any company or body corporate incorporated outside
India which— (a) has a place of business in India whether by itself or through an
agent, physically or through electronic mode; and (b) conducts any business activity
in India in any other manner.5
 (46) ―holding company, about one or more other companies, means a company of
which such companies are subsidiary companies;6
 (56) ―memorandum means the memorandum of association of a company as
originally framed or as altered from time to time in pursuance of any previous
company law or of this Act;7
 (87) ―subsidiary company or ―subsidiary, about any other company (that is to say
the holding company), means a company in which the holding company— (i) controls
the composition of the Board of Directors; or (ii) exercises or controls more than one-
half of the total share capital either at its own or together with one or more of its
subsidiary companies:8

Expert committee report on joint ventures by the Ministry of Corporate Affairs

The expert committee has discussed the challenges and legal complexities of joint ventures in
India. Here's a summary of the key points:9

 Joint ventures are crucial for accessing capital and technology in the modern business
world, and the ability to do so is closely tied to legal regulations.
 Court judgments in India have addressed the validity of joint venture agreements.
Such covenants are recognized when included in a company's Articles of Association.
3
The Companies Act, 2013, § 2 (6), No. 18, Acts of Parliament, 2013 (India).
4
The Companies Act, 2013, § 2 (10), No. 18, Acts of Parliament, 2013 (India).
5
The Companies Act, 2013, § 2 (42), No. 18, Acts of Parliament, 2013 (India).
6
The Companies Act, 2013, § 2 (46), No. 18, Acts of Parliament, 2013 (India).
7
The Companies Act, 2013, § 2 (56), No. 18, Acts of Parliament, 2013 (India).
8
The Companies Act, 2013, § 2 (87), No. 18, Acts of Parliament, 2013 (India).
9
MINISTRY OF CORPORATE AFFAIRS,
https://www.mca.gov.in/Ministry/reportonexpertcommitte/chapter3.html (last visited Oct. 11, 2023).
 Still, they are subject to the Companies Act, often leading to disputes resolved
through contract law and lengthy arbitration.
 Some argue for an exception to Section 9 of the Companies Act, allowing more
flexibility in joint venture documentation. However, this might require disclosure to
third parties dealing with the shareholders.
 The committee suggests creating a framework within Company Law to recognize
joint venture agreements for corporate actions. This should balance the need for
flexibility with preventing the misuse of legal provisions.
 Resolving these conflicts is essential to facilitate the flow of capital and technology in
India, and the committee recommends incorporating suitable provisions in the new
Company Law to recognize joint venture arrangements between substantial
shareholders or partners.

The passage highlights the need to address legal challenges and promote a transparent
framework for joint ventures in India while ensuring compliance with relevant laws and
regulations.