# Joint Venture Company in India with a Foreign Partner (2026)

> Source: https://krystal7.com/insights/joint-venture-company-india-foreign-partner
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 12 Oct 2026; updated 25 Oct 2026
> Summary: A joint venture company in India with a foreign partner follows FDI caps and FEMA fair value pricing, and files FC-GPR within 30 days of each allotment.

*Written by CA Nandini, Krystal7 Consultants. Last updated 26 October 2026.*

## AI Overview Summary

- A foreign partner usually forms an Indian joint venture as a Private Limited company. An LLP can take FDI only in sectors open to 100 percent automatic FDI without performance conditions.
- Rule 21 of the NDI Rules makes fair value a floor when shares go to a non resident and a ceiling when a non resident sells to a resident. The valuation certificate must be no more than 90 days old.
- Rule 9(5) of the NDI Rules allows put and call options only after a lock in of at least one year and without any assured return.
- A partner linked to a land border country needs government approval under rule 6(a) of the NDI Rules. Since March 2026, non controlling land border ownership of up to 10 percent stays automatic.
- The joint venture files Form FC-GPR within 30 days of each issue to the foreign partner, and the FLA return by 15 July. A partner with 26 percent of the votes is an associated enterprise.

**A foreign partner usually forms a joint venture in India as a Private Limited company, with the shares split by agreement, for example 51:49. The sector sets the foreign investment cap and decides whether government approval is needed. Press Note 3 sends any partner linked to a country sharing a land border with India to the government route. Shares move at FEMA fair value, so a put option cannot promise a fixed return. The company files Form FC-GPR within 30 days of each allotment to the foreign partner.**

This page compares the three joint venture (JV) structures. It then covers sector caps, pricing, the shareholders' agreement (SHA) and its limits under Indian law, merger control, FEMA filings, exits, disputes and tax. A 51:49 worked example shows the share numbers and the filings they trigger.

## What are the ways to set up a joint venture in India?

There are three. The partners can form a Private Limited company, form a limited liability partnership (LLP), or sign a contract without forming an entity. We recommend a Private Limited company for most foreign JVs, because FEMA allows FDI in a company in far more sectors than in an LLP.

The Explanation to section 2(6) of the Companies Act, 2013 defines a joint venture as "a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement". The same clause treats a joint venture company as an associate company of its partners.

| Point | Private Limited company JV | LLP JV | Contractual JV |
|---|---|---|---|
| Legal form | Separate company under the Companies Act, 2013 | Body corporate under the LLP Act, 2008 | No new entity; a contract between the partners |
| FDI entry | Automatic or government route, by sector | Automatic route only, in sectors open to 100% automatic FDI with no FDI linked performance conditions | No FDI into an entity; the foreign partner may open a project or branch office |
| Constitution | Articles of association plus the SHA | LLP agreement | JV or consortium agreement |
| Liability | Limited to share capital | Limited to agreed contribution | Each partner liable under the contract |
| FEMA reporting | FC-GPR, FC-TRS, FLA return | LLP(I), LLP(II) | Depends on the office the foreign partner opens |
| Main tax risk | Transfer pricing on partner transactions | Transfer pricing on partner transactions | Assessment as an association of persons; permanent establishment for the foreign partner |
| Fits | Most JVs, capped sectors, later investors | Small ventures in fully open sectors | One project or one bid |

Source: Companies Act, 2013, section 2(6); Consolidated FDI Policy, 15 Oct 2020, paragraph 3.2.4; FEMA 395/2019-RB, regulation 4; Income Tax Act, 2025, section 2(77)(e); all read 26 Oct 2026.

A Private Limited company gives each partner shares, board seats and an exit by share transfer. Section 2(68) of the Companies Act, 2013 requires its articles to restrict share transfers. That restriction is the hook for the SHA's transfer clauses.

An LLP can take FDI only on the automatic route. The sector must allow 100 percent automatic FDI with no FDI linked performance conditions (paragraph 3.2.4 of the FDI Policy). Capital contribution must be at or above a fair price under an internationally accepted valuation norm. Our guide to [FDI in an LLP](/insights/fdi-in-llp-india-foreign-partners) covers designated partners and reporting.

A contractual JV suits one project, such as a bid or a construction contract. A foreign partner that needs a base in India usually opens a project or branch office under FEMA 22(R)/2016-RB. Our [branch office guide](/insights/branch-office-in-india-rbi-rules) covers that route. The tax risk sits with the arrangement, because section 2(77)(e) of the Income Tax Act, 2025 treats an association of persons as a person. We set out each partner's scope, price and liability separately to reduce that risk.

## Which FDI caps and entry routes apply to a joint venture?

The sector decides the cap and the route under Schedule I of the FEMA (Non Debt Instruments) Rules, 2019 (the NDI Rules). Many sectors allow 100 percent FDI on the automatic route, so a 51:49 split is often a commercial choice. In capped sectors, the cap fixes the foreign share.

| Sector | Cap | Entry route |
|---|---|---|
| Manufacturing | 100% | Automatic |
| Defence industry | 100% | Automatic up to 74%, government beyond |
| Domestic scheduled passenger airline | 100% | Automatic up to 49%, government beyond (100% automatic for NRIs) |
| Uplinking of news and current affairs TV channels | 49% | Government |
| Newspapers and periodicals on news and current affairs | 26% | Government |
| Ecommerce, marketplace model | 100% | Automatic; the inventory model is closed to FDI |

Source: NDI Rules, Schedule I, RBI copy updated up to 2 Sep 2026; Consolidated FDI Policy, 15 Oct 2020, for ecommerce; both read 26 Oct 2026.

The cap also counts indirect foreign investment. Under rule 23 of the NDI Rules, an Indian partner owned or controlled by non residents brings foreign investment with it. Take a news portal JV with a foreign partner at 26 percent. If the Indian partner holding 74 percent is itself foreign controlled, the JV breaches the cap. Our guide to [FDI automatic route sectors](/insights/fdi-automatic-route-sectors-in-india) lists the conditions.

### What does Press Note 3 mean for a joint venture partner?

A partner from a country sharing a land border with India can invest only on the government route. The same applies to a partner whose beneficial owner is a citizen of such a country. Rule 6(a) of the NDI Rules carries the rule that Press Note 3 (2020 Series) started. The countries are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.

Press Note No. 2 (2026 Series) of 15 Mar 2026 ties beneficial ownership to rule 9(3) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Under the Cabinet decision of 10 Mar 2026, non controlling land border beneficial ownership of up to 10 percent stays on the automatic route. The investee company reports it to DPIIT.

The decision also sets 60 days for proposals in capital goods, electronic capital goods, electronic components, and polysilicon and ingot wafer. There, majority shareholding and control must stay with resident Indian citizens. On our filings, a Press Note 3 approval adds about six months, and the Ministry of Home Affairs clears directorship and shareholding separately. Our [Press Note 3 guide](/insights/press-note-3-fdi-land-border-countries) covers the tests.

## How are shares priced when a foreign partner subscribes or sells?

FEMA sets a floor on the way in and a ceiling on the way out. Under rule 21 of the NDI Rules, an unlisted company cannot issue shares to a non resident below fair value. A resident selling to a non resident must get at least fair value. A non resident selling to a resident can get at most fair value.

A Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant certifies fair value by "any internationally accepted pricing methodology". Paragraph 8.11 of the RBI Master Direction on Foreign Investment says the certificate "must not be more than ninety days old as on the date of the investment".

| Transaction | Price test for an unlisted company | FEMA valuation | Rule |
|---|---|---|---|
| Subscriber shares at incorporation | Face value | No | Rule 21(2) |
| Fresh issue to the foreign partner | Not less than fair value | Yes | Rule 21(2)(a) |
| Rights issue in proportion to holdings | Not less than the price offered to residents | No | Rule 7 |
| Resident partner sells to foreign partner | Not less than fair value | Yes | Rule 21(2)(b) |
| Foreign partner sells to resident partner | Not more than fair value | Yes | Rule 21(2)(c) |
| Deferred consideration on a transfer | Up to 25% of the total, within 18 months | Total must meet rule 21 | Rule 9(6) |

Source: NDI Rules, rules 7, 9(6) and 21, RBI copy updated up to 2 Sep 2026; RBI Master Direction on Foreign Investment, updated up to 15 Jun 2026, paragraph 8.11; read 26 Oct 2026.

Rule 21(2)(c) states the principle. The non resident "is not guaranteed any assured exit price" and exits "at the price prevailing at the time of exit". Our [FEMA pricing guidelines guide](/insights/fema-pricing-guidelines-share-valuation) covers the valuation methods.

## Which shareholders' agreement clauses work under Indian law?

Most standard JV clauses work in India if the articles repeat them and the price terms respect FEMA. The table maps each clause to the Indian law that limits it.

| Clause | What it does | Indian law limit |
|---|---|---|
| Board composition | Each partner nominates directors in line with its holding | Put the right in the articles; one director must meet the resident director rule in section 149(3) |
| Reserved matters | Listed decisions need both partners' consent | Section 6: the Act overrides the articles and any agreement |
| Deadlock | Escalation, mediation, then a buy sell clause | The buy sell price must respect rule 21 |
| Right of first refusal | A selling partner offers its shares to the other first | Must sit in the articles; section 2(68) |
| Tag along and drag along | The minority leaves with the majority, or is made to | Each seller's price meets the rule 21 test; Press Note 3 if the buyer has land border links |
| Put and call options | A partner can force a sale or purchase on a trigger | Rule 9(5): lock in of at least one year, no assured return |
| Non compete | Partners stay out of the JV's business | Section 27 of the Indian Contract Act, 1872 |

Source: Companies Act, 2013, sections 2(68), 5 and 6; NDI Rules, rules 9(5) and 21; Indian Contract Act, 1872, section 27; read 26 Oct 2026.

### Board composition and reserved matters

Board seats usually follow the shareholding. In a 51:49 JV with five directors, a common split is three seats and two. The articles should let each partner nominate and replace its directors by written notice. One director must meet the residence test in section 149(3).

Reserved matters protect the minority. A typical list covers the budget, new share issues, borrowing above a limit, related party contracts, a change of business and changes to the articles. Quorum should need one nominee of each partner, with a fallback at an adjourned meeting.

Wide vetoes can amount to control. Section 2(27) of the Companies Act, 2013 counts control exercised through "shareholders agreements or voting agreements". That matters for the downstream investment rules below.

### Deadlock

The Companies Act, 2013 sets no deadlock procedure, so the SHA must supply one. We draft three steps: 30 days of talks between senior executives, then mediation, then a buy sell clause. In the buy sell step, one partner names a price and the other must sell or buy at it.

FEMA limits the last step. The foreign partner cannot sell to the Indian partner above fair value, and cannot buy from it below fair value. We tie every buy sell price to a fresh valuation certificate, so either outcome passes rule 21.

### Transfer clauses and options

Each transfer must pass its own FEMA test. A drag along that forces the Indian partner to sell to a foreign buyer needs a price at or above fair value. A buyer with land border links triggers Press Note 3, even if the foreign partner is American or European. Our guide to [resident and non resident share transfers](/insights/share-transfer-resident-to-non-resident-fc-trs) covers Form FC-TRS.

Rule 9(5) of the NDI Rules lets a non resident with an optionality clause "exit without any assured return, subject to the pricing guidelines". The instrument must first complete a lock in of one year, or any longer lock in that applies. A put at cost plus 12 percent a year fails. A put at fair value on the exercise date passes.

### Non compete

Section 27 of the Indian Contract Act, 1872 voids an agreement in restraint of a lawful trade. Exception 1 saves a seller of goodwill who agrees not to compete within reasonable local limits. On our reading, a non compete that runs while the partner holds shares is easier to defend than one that runs after exit.

## Why must the articles carry the shareholders' agreement terms?

The articles bind the company and every member, while an SHA binds only its signatories. In V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160, the Supreme Court held that the articles bind the company and its shareholders. The NCLAT recorded that holding on 23 Aug 2017 in Company Appeal (AT) No. 216 of 2017.

Section 6 of the Companies Act, 2013 gives the Act effect "notwithstanding anything to the contrary" in the articles or any agreement. A repugnant clause is void. So every SHA term must work inside the Act and must appear in the articles to bind the company and later shareholders.

Section 5(3) adds entrenchment: named clauses can change only under conditions stricter than a special resolution. Under section 5(4), a private company adopts it on formation, or later with every member's agreement. We put the SHA terms and the entrenchment clause into the articles filed with SPICe+. Our guide to the [memorandum and articles](/insights/memorandum-and-articles-of-association-foreign-subsidiary) covers the drafting.

## Does a joint venture need Competition Commission approval?

Only if the deal crosses a threshold in section 5 of the Competition Act, 2002, or the deal value test. The Ministry of Corporate Affairs revised the asset and turnover figures on 7 Mar 2024.

| Test | Threshold |
|---|---|
| Parties together, in India | Assets above ₹2,500 crore or turnover above ₹7,500 crore |
| Parties together, worldwide | Assets above USD 1.25 billion with ₹1,250 crore in India, or turnover above USD 3.75 billion with ₹3,750 crore in India |
| Group, in India | Assets above ₹10,000 crore or turnover above ₹30,000 crore |
| Group, worldwide | Assets above USD 5 billion with ₹1,250 crore in India, or turnover above USD 15 billion with ₹3,750 crore in India |
| Small target exemption | Target assets in India up to ₹450 crore or turnover in India up to ₹1,250 crore |
| Deal value | Value above ₹2,000 crore and a target with substantial business operations in India; overrides the small target exemption |
| Review time | 30 days for a prima facie opinion; 150 days overall |

Source: PIB release of the Ministry of Corporate Affairs, 8 Mar 2024; CCI, Fair Play newsletter, Volume 50; CCI page on combination notices; read 26 Oct 2026.

The deal value test has applied since September 2024. A target has substantial business operations in India when India accounts for 10 percent or more of its global users, gross merchandise value or turnover. Outside digital services, the Indian figure must also exceed ₹500 crore.

A new JV funded with cash starts with no assets, turnover or business in India. On our reading, it falls within the small target exemption and outside the deal value test. If a partner moves an existing Indian business into the JV, we test that transfer against every row.

## Which FEMA filings does a joint venture make?

Each issue of shares to the foreign partner goes on Form FC-GPR within 30 days. A transfer between a resident and a non resident goes on Form FC-TRS within 60 days. Both are filed on RBI's FIRMS portal. The JV also files the annual return on foreign liabilities and assets (FLA) by 15 July.

| Event | Filing or step | Time limit | Who acts |
|---|---|---|---|
| Money received for shares | Allot, or refund within the next 15 days | 60 days from receipt | JV company |
| Issue of shares to the foreign partner | FC-GPR | 30 days from issue | JV company |
| Transfer between a resident and a non resident | FC-TRS | 60 days from transfer or payment, whichever is earlier | Resident party |
| Downstream investment by a foreign owned or controlled JV | Form DI | 30 days from allotment | JV company |
| Capital contribution to an LLP JV | LLP(I) | 30 days from receipt | LLP |
| Annual return on foreign liabilities and assets | FLA | 15 July each year | JV company |

Source: FEMA 395/2019-RB, Schedule I Part A and regulations 4(1), 4(2), 4(3), 4(6) and 4(11); RBI list of FEMA notifications, checked 26 Oct 2026, which shows no later change to these limits.

### When is the joint venture a foreign owned or controlled company?

A JV is foreign owned when non residents beneficially hold more than 50 percent of its equity. It is foreign controlled when they can appoint a majority of the board or control management or policy decisions. Paragraph 9.1.7 of the Master Direction counts control through a shareholders' or voting agreement. A 49:51 JV can be foreign controlled if the SHA hands the board to the foreign partner.

Such a JV makes indirect foreign investment when it invests in another Indian company (rule 23). The investee must meet the route, cap and pricing rules. The JV must use funds from abroad or internal accruals, not money borrowed in India (paragraphs 9.3.6 and 9.3.7). It files Form DI within 30 days of allotment and gets a yearly certificate from its statutory auditor. Our [downstream investment guide](/insights/downstream-investment-focc-form-di) works through the rules.

## How can a partner exit and at what price?

A partner exits by selling to the other partner or a third party, or through a buyback or winding up. The direction of the sale sets the FEMA test. The SHA should name the valuer, the method and the timetable.

| Exit route | FEMA price test | Filing | Points to plan |
|---|---|---|---|
| Foreign partner sells to the Indian partner | Not more than fair value | FC-TRS | Lock in of one year for an option |
| Indian partner sells to the foreign partner | Not less than fair value | FC-TRS | Up to 25% can be deferred for 18 months |
| Resident partner sells to a foreign buyer | Not less than fair value | FC-TRS | Press Note 3 check on the buyer |
| Buyback by the JV | On our reading, a transfer to a resident, so not more than fair value | FC-TRS, on our reading | Companies Act limits and tax on the buyback |
| Winding up | Surplus shared by holding | Remittance through the AD bank | Agree the trigger in the SHA |

Source: NDI Rules, rules 9(5), 9(6) and 21; FEMA 395/2019-RB, regulation 4(3); read 26 Oct 2026.

A non resident's gain on unlisted Indian shares is taxable in India unless a treaty says otherwise. Our guide to [tax on unlisted shares sold by non residents](/insights/tax-on-sale-of-unlisted-shares-by-non-residents) gives the rates and the buyer's withholding.

## Where should disputes be resolved?

We recommend arbitration for JV disputes, because a court case between partners can run for years. The SHA names the seat, the rules, the number of arbitrators and the language. The Arbitration and Conciliation Act, 1996 governs arbitration seated in India and the enforcement of foreign awards here.

We use Indian law as the governing law, because the Companies Act and FEMA apply to the JV anyway. We draft any share remedy as a sale at fair value. On our reading, an award paying a non resident a fixed price for its shares meets the same FEMA limits at enforcement.

## How are dividends and partner transactions taxed?

The JV pays company tax first. Under section 200 of the Income Tax Act, 2025 the rate is 22 percent. With the 10 percent surcharge and 4 percent cess, that is 25.168 percent. Otherwise it is 25 percent with turnover up to ₹400 crore, or 30 percent, plus surcharge and cess (Finance Bill, 2026 memorandum).

Section 207 taxes dividends received by a foreign company at 20 percent (Table, serial number 1). The JV deducts tax at that rate plus surcharge and cess. A partner can claim a lower treaty rate with a tax residency certificate and Form 41.

| Foreign partner's country | Treaty rate | Condition | Article |
|---|---|---|---|
| United States | 15% | Company owning at least 10% of the voting stock; otherwise 25% | 10(2) |
| United Kingdom | 10% | 15% for dividends from immovable property income of an investment vehicle | 11(2) |
| Japan | 10% | None | 10(2) |
| Germany | 10% | None | 10(2) |
| Singapore | 10% | Company holding at least 25% of the shares; otherwise 15% | 10(2) |
| United Arab Emirates | 10% | None | 10(2) |
| No treaty claim | 20% plus surcharge and cess | Section 207 | Not applicable |

Source: Income Tax Department treaty texts for each country; Income Tax Act, 2025, section 207; read 26 Oct 2026.

Our guide to [dividends paid to a foreign parent](/insights/dividend-from-indian-subsidiary-to-foreign-parent) covers the bank steps.

A partner holding 26 percent or more of the voting power is an associated enterprise under section 162. In a 51:49 JV, both partners qualify. The foreign partner's royalty, fees, loans and supplies must be at arm's length, reported in Form 48 under section 172. The Indian partner bears part of any overpriced royalty through its profit share. We fix the transfer pricing method in the SHA so the partners do not dispute it later.

## Worked example of a 51:49 joint venture

DE GmbH, a German machinery maker, and IN Private Limited, an Indian distributor, form JV Private Limited in Gurugram with ₹10 crore of equity. Neither partner has a land border beneficial owner. Machinery manufacturing allows 100 percent FDI on the automatic route. The dates and the year six valuation are assumptions.

The partners incorporate with ₹15 lakh of authorised capital, so the MCA registration fee is nil. They subscribe ₹10 lakh at ₹10 a share, raise authorised capital to ₹10 crore and take the rest by a rights issue at ₹10. Rule 7 tests a rights issue against the price offered to residents, so FEMA needs no valuation certificate.

| Stage | DE GmbH shares | IN Private Limited shares | Total shares | Paid up capital (₹) |
|---|---|---|---|---|
| Subscription to the memorandum | 51,000 | 49,000 | 1,00,000 | 10,00,000 |
| Rights issue at ₹10 | 50,49,000 | 48,51,000 | 99,00,000 | 9,90,00,000 |
| Holding after the rights issue | 51,00,000 | 49,00,000 | 1,00,00,000 | 10,00,00,000 |
| Cash paid (₹) | 5,10,00,000 | 4,90,00,000 | Not applicable | 10,00,00,000 |

Source: our arithmetic on the stated assumptions; NDI Rules, rules 7 and 21; read 26 Oct 2026.

SPICe+ costs follow a real Haryana challan Krystal7 paid on 14 Aug 2026 for ₹15 lakh of authorised capital. It showed ₹143 for PAN and TAN and ₹195 of stamp duty. Name reservation is ₹1,000. We treat the incorporation date as the issue date of the subscriber shares, the conservative reading.

| Date | Event | Filing | Due by |
|---|---|---|---|
| 2 Nov 2026 | Incorporation, with the SHA terms in the articles | SPICe+ | Not applicable |
| 2 Nov 2026 | 51,000 subscriber shares to DE GmbH | FC-GPR | 2 Dec 2026 |
| 2 Nov 2026 | Commencement of business declaration | INC-20A | 1 May 2027 |
| 4 Jan 2027 | Members raise authorised capital to ₹10 crore | SH-7 | 3 Feb 2027 |
| 1 Feb 2027 | Rights money reaches the JV | Allotment | 2 Apr 2027 |
| 15 Feb 2027 | Board allots 99,00,000 shares | PAS-3 | 17 Mar 2027 |
| 15 Feb 2027 | 50,49,000 of them to DE GmbH | FC-GPR | 17 Mar 2027 |
| 31 Mar 2027 | First year ends | FLA return | 15 Jul 2027 |

Source: FEMA 395/2019-RB, regulations 4(1) and 4(2) and Schedule I Part A; Companies Act, 2013, sections 10A, 39(4) and 64; Krystal7 challan of 14 Aug 2026; read 26 Oct 2026.

Our [authorised capital fee calculator](/static/tools/authorised-capital-fee-calculator.html) works out the MCA fee on the increase. No Competition Act notice is due, because the JV starts with no assets, turnover or business. DE GmbH holds 51 percent, so the JV is foreign owned. If it later invests in an Indian component maker, it files Form DI within 30 days of allotment.

In year four the JV declares a dividend of ₹2,00,00,000. DE GmbH receives ₹1,02,00,000. With a German tax residency certificate and Form 41, the JV deducts 10 percent under the treaty, which is ₹10,20,000.

In year six DE GmbH calls IN Private Limited's 49,00,000 shares. A Chartered Accountant certifies fair value at ₹38 a share within 90 days of closing.

| Item | Working | Amount (₹) |
|---|---|---|
| Price for the 49% stake | 49,00,000 × 38 | 18,62,00,000 |
| Most that can be deferred or escrowed for up to 18 months | 25% × 18,62,00,000 | 4,65,50,000 |
| FEMA test | Resident seller, so at least ₹38 a share | Not applicable |
| Filing | FC-TRS within 60 days of the transfer or payment, whichever is earlier | Not applicable |

Source: NDI Rules, rules 9(6) and 21; FEMA 395/2019-RB, regulation 4(3); our arithmetic; read 26 Oct 2026.

DE GmbH may pay more than ₹38, because the test for a resident seller is a floor. A call price fixed at ₹30 in 2026 would fail at exercise.

## Common mistakes

1. **Leaving the SHA terms out of the articles.** Fix: put the transfer, nomination, reserved matter and exit clauses in the articles, with an entrenchment clause.
2. **Writing a put option with a fixed return.** Fix: price every option at fair value on the exercise date, after a one year lock in.
3. **Ignoring the Indian partner's foreign shareholders.** Fix: test whether the Indian partner is foreign owned or controlled and count its stake against the cap.
4. **Missing a land border beneficial owner.** Fix: collect beneficial owner declarations from every foreign partner and buyer before signing.
5. **Using a valuation certificate older than 90 days.** Fix: time the money or the transfer within 90 days of the certificate.
6. **Handing a 49 percent partner control without noticing.** Fix: read the board and veto clauses against section 2(27).
7. **Leaving transfer pricing out of the SHA.** Fix: agree the royalty and fee method and document it in Form 48 each year.

## Checklist for a joint venture with a foreign partner

1. Confirm the sector cap and entry route under Schedule I of the NDI Rules.
2. Test both partners' beneficial owners against Press Note 3.
3. Choose the structure: Private Limited company, LLP or contract.
4. Test the Competition Act thresholds if a partner contributes a business.
5. Agree the SHA: board, reserved matters, deadlock, transfers, options, non compete and arbitration.
6. Draft articles that carry every SHA term, with entrenchment.
7. Incorporate through SPICe+ and file FC-GPR for the subscriber shares within 30 days.
8. Obtain a valuation certificate for any issue above face value other than a rights issue.
9. Allot within 60 days of receipt, then file PAS-3 and FC-GPR within 30 days.
10. File INC-20A within 180 days of incorporation.
11. Fix the transfer pricing method for partner transactions.
12. File the FLA return by 15 July each year, and Form DI after any downstream investment.

If you want us to set up the JV company and run its FEMA filings, write to us through our [foreign subsidiary service](/services/foreign-subsidiary.html).

## Key terms

- **Joint venture company**: A company owned by two or more partners who share control of it. The Explanation to section 2(6) of the Companies Act, 2013 defines a joint venture as a joint arrangement where the parties with joint control have rights to its net assets. (https://krystal7.com/glossary#joint-venture-company)
- **Optionality clause (FEMA)**: A put or call option attached to shares held by a non resident. Rule 9(5) of the NDI Rules allows the exit only after a lock in of at least one year, without any assured return, at a price that meets the pricing guidelines. (https://krystal7.com/glossary#optionality-clause-fema)
- **Entrenchment provision**: A clause in the articles that can be changed only by a procedure stricter than a special resolution, under section 5(3) of the Companies Act, 2013. A private company adopts one on formation or with the agreement of all members, and notifies the Registrar. (https://krystal7.com/glossary#entrenchment-provision)
- **Foreign Owned or Controlled Company (FOCC)**: The common short form for an Indian company owned or controlled by persons resident outside India. Ownership means more than 50 percent of equity held beneficially. Control means the right to appoint a majority of directors or control management or policy decisions, as defined in the Companies Act, 2013. (https://krystal7.com/glossary#foreign-owned-or-controlled-company)
- **Deal value threshold**: The merger control test added to section 5 of the Competition Act, 2002, in force since September 2024. A deal worth more than INR 2,000 crore needs Competition Commission approval if the target has substantial business operations in India, even if the small target exemption would apply. (https://krystal7.com/glossary#deal-value-threshold)

## Frequently Asked Questions

### Can a foreign company hold 51 percent of an Indian joint venture?

Yes, in any sector whose cap is 51 percent or more. Many sectors allow 100 percent FDI on the automatic route under Schedule I of the NDI Rules. A partner with land border links needs government approval at any percentage.

### Is a put option at a fixed price allowed under FEMA?

No. Rule 9(5) of the NDI Rules allows an exit through an option only "without any assured return". The lock in must be at least one year. A put at fair value on the exercise date is allowed.

### Do shareholders' agreement terms bind the company if they are not in the articles?

Not reliably. The Supreme Court held in V.B. Rangaraj that the articles bind the company and its shareholders. An SHA binds only the parties who sign it, so we copy every key term into the articles.

### Does a new joint venture company need Competition Commission approval?

Usually not when the partners fund it with cash. A new company has no assets, turnover or business, so on our reading it falls within the small target exemption. Test the thresholds again if a partner moves an existing business into it.

### Is a joint venture foreign owned if the foreign partner holds only 49 percent?

It is not foreign owned, but it can be foreign controlled. Control includes the right to appoint a majority of the directors, including under a shareholders' agreement. A foreign controlled JV follows the downstream investment rules in rule 23.

### How long can part of the price be deferred when a partner sells?

Up to 18 months, for up to 25 percent of the total price, under rule 9(6) of the NDI Rules. The deferred part can be paid later, held in escrow or covered by an indemnity. The total price must still meet rule 21.

### What tax does the foreign partner pay on dividends?

Section 207 of the Income Tax Act, 2025 taxes dividends to a foreign company at 20 percent plus surcharge and cess. A treaty can cut that, for example to 10 percent for a German or Japanese partner, with a tax residency certificate and Form 41.

### Are transactions between the joint venture and its partners subject to transfer pricing?

Yes, for any partner with 26 percent or more of the voting power, which section 162 makes an associated enterprise. The JV files Form 48 under section 172 for its international transactions.

### Can a partner from China join an Indian joint venture?

Yes, with government approval under rule 6(a) of the NDI Rules. A company from elsewhere also needs approval if a land border citizen is its beneficial owner above the rule 9(3) threshold or controls it. Non controlling land border ownership of up to 10 percent stays automatic, with reporting to DPIIT.

### Can a non compete bind a partner after it exits the joint venture?

Only within narrow limits. Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of trade, except a seller of goodwill's promise within reasonable local limits. We tie any post exit restraint to that exception.

## Sources

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