Setting up and operating a joint ventureStructure
Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured?
Typically, the structuring of a joint venture is based on the business plan of the partners and the nature of the business proposed to be carried out through the joint venture. It also depends on the amount of control and supervision that the parties may wish to retain. Factors arising from the foreign-investment regulatory regime of India (such as restrictions and conditions imposed on foreign investments in a few sectors and other requisite approvals) also play a crucial role in the structuring of the joint venture. Further, the parties must also take into consideration the taxation treatment of different structures while fashioning the structure of a joint venture. An unincorporated joint venture could be characterised as an ‘association of persons’, which would be a distinct entity (ie, a separate taxable entity in India), and is likely to result in certain payments from such an unincorporated joint venture to its members being disallowed in the hands of the joint venture for tax purposes.
In the case of a capital-intensive project, the incorporated joint venture structure is usually preferred over the unincorporated joint venture structure, owing to its ability to source huge amounts of capital resources by means of equity, debt or other avenues of financing. Moreover, incorporated ventures, such as companies and LLPs, have the scope to limit their liability, unlike a partnership, which has both a limited ability to raise capital and unlimited liability as well. Further, there are certain incentives based on the place of incorporation of the joint venture, extended by the Government of India, such as for special economic zones, which may also affect the structuring of a joint venture.
The structuring of a joint venture also depends on the time period in which the joint venture parties wish to establish the joint venture and whether the joint venture parties are looking for a permanent identity for their joint venture. Incorporated joint ventures require more start-up time owing to a large number of formalities required for the purpose of incorporation of a company, compared to that of setting up a partnership firm or a contractual joint venture. Moreover, incorporated joint ventures have permanent, separate legal identities, which may not be necessary for a single or specified set of transactions and which could be achieved through an unincorporated joint venture. Unincorporated joint ventures permit partners to enter into strategic alliances without the formality of incorporating a corporate vehicle. Further, the exit mechanism is also simpler in unincorporated joint ventures, as compared to the incorporated joint ventures.Tax considerations
When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated?
A joint venture entity can be set up either directly or indirectly by way of setting up an intermediary holding company in an offshore jurisdiction. Any gains made by the shareholders from the sale of shares of the joint venture entity, which are held by the investor as capital assets, are characterised as capital gains and are taxed under the Income-tax Act 1961 (the IT Act). The IT Act provides that taxability of an entity that is resident in a jurisdiction with which India has signed a Double Taxation Avoidance Agreement (DTAA) would be governed under the provisions of the IT Act or the relevant DTAA, whichever is more beneficial to the non-resident taxpayer. India also made the General Anti-Avoidance Rules (GAAR) effective from 1 April 2017. However, it is important to note that tax benefits under the relevant DTAA claimed by a non-resident shareholder may not be available, if the non-resident entity has been set up with the main purpose of obtaining tax benefit, inter alia, where there was no commercial justification for investing through an intermediary holding company. In this context, one would need to be constantly updated with and take note of the ever-changing international tax landscape. Action 15 of the Base Erosion and Profit Shifting (BEPS) programme initiated by the Organisation for Economic Co-operation and Development (OECD) provides for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). MLI seeks to amend the existing network of bilateral tax treaties, and similar to GAAR, inter alia, seeks to deny benefits available under the tax treaties to residents of the signatory countries where the principal purpose of setting up an entity in the relevant contracting state is to avail of such benefits. It may be noted that India deposited the ratified copy of MLI and other requirements with the Depository (OECD Director General) on 25 June 2019 and the ratified MLI came into force in respect of all covered DTAAs of India on 1 October 2019. The Government of India issued a notification dated 9 August 2019 publishing the ratified provisions of MLI applicable for India, the list of covered treaties and India’s position on various articles. The MLI will come into effect for any treaty from 1 April 2020.
Investment into the joint venture company can be made either in the form of common stock or preferred stock, or debt. Foreign investors are generally allowed to invest in common stock or preferred stock, and debt convertible into common stock. While return on debt by way of interest can be claimed as tax-deductible expenditure by the Indian entity, any return by way of dividends payable to common or preferred stock holders would not be allowed as a tax-deductible expense. Conversion of compulsorily convertible preference shares and compulsorily convertible debentures into equity shares has been specifically exempted from tax. As per the provisions of the IT Act, if shares are received for a consideration lower than their fair market value (computed in accordance with the prescribed method), then the difference between the fair market value of the security received by the shareholder and the price paid for the same could be chargeable to tax in the hands of the recipient under the heading ‘income from other sources’.
Further, if the transfer of unlisted securities is made at a value less than their fair market value, then the fair market value (computed in accordance with the prescribed method) of such securities may be deemed to be the full value of sale consideration and the transferor may accordingly be liable to pay capital gains tax as per the provisions of the IT Act.
Further, certain payments to residents and all payments to non-residents that are chargeable to income tax in India are subject to withholding tax obligations. Failure to withhold such tax may result in interest, penalties and fines as prescribed under the IT Act.
The sale or purchase of shares of the joint venture entity or infusion of capital into the joint venture entity would, however, be outside the ambit of goods and services tax (GST) legislation in India, as the same would amount to transfer of securities or money, as the case may be.Asset contribution restriction
Are there any restrictions on the contribution of assets to a joint venture entity?
Generally, there are no restrictions on contributions of assets to a joint venture entity. However, depending on the type of the joint venture entity, there may be certain compliance requirements under extant laws for contribution of such assets. For example, if assets are contributed by a joint venture partner in a limited liability company in lieu of shares, the Companies Act lays down certain procedures for issue of shares for ‘consideration other than cash’. Further, the Companies Act stipulates rules in relation to valuation and treatment of the non-cash consideration.
Further, extant foreign exchange regulations also restrict (and provide detailed procedures for) contribution of assets to the joint venture entity depending on the nature and business of the entity, type of asset and the resident status of the entity or person contributing the asset. The contribution of assets classifiable as supply of goods or the supply of services to a joint venture entity by joint venture partners may be exigible to tax under GST legislation in India. These restrictions and the taxability of such transactions have to be analysed case by case.Interaction between constitution and agreement
What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties?
Usually, parties to an Indian joint venture enter into one or more contractual arrangements, typically with respect to shareholding in the joint venture company, to set out the terms, rights and obligations thereunder.
Owing to privity of contract, unless the joint venture company is party to the contractual arrangement between the joint venture parties, the provisions of such an arrangement may not be directly enforceable against it. Therefore, the articles of association (AOA) of the joint venture company must either incorporate the provisions of the joint venture agreement or be silent on the same, thereby not hosting any contradictory or restrictive provision in relation to rights specified in the joint venture agreement in order for the joint venture company to give effect to these provisions. However, in the case of any conflict or inconsistency between the provisions of the AOA and the joint venture agreement (to the extent the joint venture company is affected), the former shall take precedence over the latter. Some understandings, such as pooling arrangements and voting agreements between the joint venture partners (see question 10), may affect the governance of the joint venture company, but do not directly involve the joint venture company per se. It has also been observed by the courts in India that the consensual agreements between particular shareholders relating to their specific shares can be enforced against the parties like any other agreement. However, in the case of an aggrieved shareholder whose rights in relation to the joint venture company cannot be enforced, he or she can approach the courts to seek liquidated damages, as stipulated under the agreement, or unliquidated damages for breach of contract as per the Indian Contract Act 1872.
There is no requirement to register a joint venture agreement.Party interaction
How may the joint venture parties interact with the joint venture entity? Are there any restrictions?
Typically, the joint venture agreement and the AOA provide rights to the joint venture parties to nominate directors on the board of the joint venture company, thus creating an important channel for the joint venture parties to interact with the joint venture entity. A critical element to be considered in relation to transactions between the joint venture parties and the joint venture entity is the regulation of specified types of transactions between related parties under the Companies Act and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR Regulations) for listed companies (the related-party transactions (RPTs) regime). A ‘related party’ has been fairly broadly defined under the Companies Act and LODR Regulations and includes any person on whose advice, directions or instructions a director or manager is accustomed to act (except in the case of professional advice).
As per the Companies Act, all transactions by the joint venture company with related parties have to be approved by the board and, under certain circumstances, by the shareholders of the joint venture company, except if such transactions are in the ordinary course of business of the company and made at arm’s length. Further, the related shareholder may not vote on such a transaction. However, the aforesaid proviso will not apply to a joint venture company in which 90 per cent or more members are relatives of the promoters or are related parties. Additionally, the requirement for passing a shareholder resolution will be obviated in the case of transactions entered into between the holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at a general meeting for approval. An arm’s-length transaction refers to a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest and is compliant with the TP Regulations.Exercising control
How may the joint venture parties exercise control over the joint venture entity’s decision-making?
The rights of an investor with respect to control and decision-making of any Indian joint venture may be classified into statutory rights and contractual rights. Statutory rights are primarily on the basis of the provisions of the Companies Act and the sector-specific restrictions (if any), as may be prescribed for foreign investment. On the other hand, contractual rights are derived from the terms and conditions of the contractual arrangement between the joint venture parties, irrespective of the extent of each shareholder’s shareholding in the joint venture company.
The Companies Act requires most matters to be approved as an ordinary resolution (a simple majority of votes cast) and certain important matters by way of a special resolution (three-quarters of the votes cast) of the shareholders. Certain matters may only be decided by a resolution of the shareholders and not at a meeting of the board. Control over the joint venture entities’ decision-making by the minority investors may be protected by incorporating provisions in the joint venture agreement that would increase the threshold required for the passing of certain resolutions (therefore providing for veto rights) or provide for special quorum requirements meetings of the board or of shareholders, ensuring representation from the minority investor. The joint venture parties usually negotiate a special regime governing the exercising of voting rights, including where the consent of a minority shareholder might be required for a resolution, where the Companies Act would only require a majority approval. Usually, the joint venture agreements provide thresholds for the shareholders in exercising rights in relation to control and management of the joint venture entity.
The joint venture parties’ interests are also protected through restrictions on their ability to transfer shares held by them in the joint venture company, as well as providing for put or call options upon the occurrence of certain specified events and circumstances (the enforceability of such provisions is discussed in question 8).Governance issues
What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?
Several challenges plague the operation of joint venture companies in India. As a result, the number of successful joint ventures in India, especially those involving a non-resident investing party, has declined.Poor or inadequate due diligence
At the time of entering into a joint venture, Indian promoters have a tendency to ‘window dress’ either the business plan or the asset, and carefully steer the due diligence being undertaken by the incoming joint venture partner. In such instances, the incoming joint venture partner is not made aware of all the pending issues surrounding the business or the asset in question. Discovery of these at a later stage often leads to disputes between the joint venture partners, owing to which there is an increased trend in the market of conducting forensic due diligence on the prospective partner. Such diligence is conducted to run background checks and analyse anti-bribery and anti-corruption policies and practices, as may be applicable on the prospective partner, with the aim of, inter alia, avoiding any possible corporate fraud.Business style in India
There are significant philosophical differences in the manner in which business is conducted overseas and in India. Some practices may lead to bribery and corruption-related issues, including but not limited to violations of the Foreign Corrupt Practices Act 1977 that hinder the governance of joint venture companies. In furtherance of the same, the Prevention of Corruption Act 1988, which governs anti-bribery and anti-corruption activities in India, was amended in 2018 to bring the provisions therein on a par with international practices. Certain types of companies in India are also required to invest in directors’ and officers’ liability insurance, covering any risks arising out of any claims against the directors or officers of the company for any breach of applicable laws, including laws pertaining to corruption and bribery.Modes of corporate governance and mediation of disputes between the joint venture partners
A lack of good mechanisms and ethical standards to internally regulate the governance of the joint venture company can have severe consequences, especially for foreign investors. Therefore, to avoid governance issues and to ensure good governance, it is crucial for the joint venture parties to adopt a variety of checks and balances, such as incorporation of specialised committees consisting of representatives of the joint venture partners and independent advisers, to look into particular aspects of the business of the joint venture. The style in which the joint venture company is to be governed, while often legislated in the joint venture agreements, may not always be practical and feasible for the company to implement, for various reasons.
The Companies Act provides for a governance regime with stringent checks and balances, including material disclosures by the company and the key managerial personnel, so as to safeguard the interests of investors even in the absence of contractually agreed protections. The Companies Act recognises the concept of independent directors, who are not related or affiliated, whether directly or indirectly, with any joint venture partner, including the natural persons in control of a joint venture partner. Independent directors may also provide the joint venture company with the relevant expertise and experience for, inter alia, an independent perspective to help:
- resolve conflicts that may arise among the joint venture parties; and
- ensure compliance with applicable law.
Such independent directors also play a pivotal role in representing the collective interests of minority shareholders. Further, joint ventures in India should also consider establishing committees such as an audit committee, to fulfil the role of a company watchdog, with a say over crucial matters relating to the appointment of the auditors of a company, approval and subsequent modification of RPTs, scrutiny of inter-corporate loans and investments, valuation of undertakings and evaluation of internal controls and risk-management systems. Such committees make decision-making processes more efficient and transparent. Addressing disputes that arise between joint venture partners in a timely manner is essential to ensure that the operations of the joint venture company are not paralysed, owing to pending disputes between joint venture partners. Apart from appointing independent directors and forming committees, the joint venture partners could also consider developing a code of conduct and policies to govern conflicts, which should be comprehensive and clear, and provide for escalation mechanisms at appropriate stages.
The board of a company plays a pivotal role in its governance and decision-making process, and is authorised and empowered to do so by the Companies Act. It has the responsibility to comply with the laws that affect the company’s corporate governance structure, the ambitions of the promoters and the rights of stakeholders, all of which are reflected in the actions of the board. However, in the event the non-resident investing party appoints non-resident directors, then such directors are typically not involved in the day-to-day affairs of the joint venture company, since several powers for the ease of everyday working are delegated by the board to the executive management of the company. Hence, to retain more control over the day-to-day affairs of the company, such non-resident investing parties shall also appoint resident directors who can act as executive or whole-time directors and manage the daily operations of the joint venture company. Recently, joint venture entities have adopted creative arrangements with respect to the appointment of key managerial persons to ensure that every joint venture partner has a say in the day-to-day management of the joint venture. This includes the appointment of the chief executive officer by the joint venture parties on a rotational basis or designating different key managerial personnel by the joint venture parties. The Companies Act also provides onerous duties and corresponding liabilities for such key managerial personnel. Providing insiders with a whistle-blowing mechanism with safeguards against retaliation is an effective way in which concerns can be reported to the audit committee or the joint venture company’s board. The minority investor’s nominee on the board or the committee, as the case may be, would have sufficient awareness of any foul play at a very nascent stage and would enable the minority investor to take corrective action.
The Companies Act sufficiently discourages non-compliance. With the increased cost of non-compliance, including contraventions that result in imprisonment of the company’s officers and personal liability, provisions relating to investigation and the punishment of fraud, the Companies Act ensures that the aforementioned governance requirements are complied with, in letter and in spirit.Kotak committee report and anticipated reforms in corporate governance
In 2017, the SEBI committee on corporate governance proposed some key recommendations with a view to enhancing the corporate governance standards of listed entities. These recommendations include, inter alia:
- the separation of roles of the chairperson and the managing director or chief executive officer;
- a requirement of 50 per cent of the total directors to be independent, which should also include at least one independent female director;
- an increase in the number of board and audit committee meetings;
- the provision of a transparent framework for regulating information rights of promoters with relation to significant shareholding and access to unpublished price-sensitive information; and
- half-yearly disclosures for RPTs.
Addressing the corporate governance issues and procedures recommended to streamline the governance practices of listed entities, a large number of recommendations proposed by the Kotak committee have been accepted by the SEBI, thereby amending major corporate laws in India and strengthening the very core of businesses.Nominee directors
With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder?
A ‘nominee director’ has been defined under section 149 of the Companies Act to mean a director nominated by any financial institution in pursuance of the provisions of any law or agreement, or appointed by any government or person, to represent its interests. Practically, a nominee director is expected to monitor the operations of the company, but at the same time is burdened with many fiduciary and statutory duties and obligations, the breach of which can attract penal provisions under various legislation. When facing a situation with a conflict of interests, wherein the interests of shareholders are in contrast with other stakeholders, such as the employees or the joint venture company itself, the Companies Act has, without prioritising one over the other, provided recognition to both the shareholders and stakeholders. In reality, it implies that the directors are liable to make difficult choices in deciding the hierarchy of conflicting interests without necessarily being favourable to the nominator, the underlying principle being that they are supposed to act in the interests of the company at all times.
Section 166 of the Companies Act mandates that a director must act in the best interests of the company and in good faith to promote the company’s objectives. A director has to maintain a balance between the interests of the nominator and the wider interests of the joint venture company and other stakeholders, and ensure that all duties are discharged with due diligence and reasonable care following due process and exercising of his or her independent judgement. If the joint venture company is proven to have committed any contravention of law, a nominee director will not be exempted and will be held equally liable as an officer in default. A director has to be diligent with RPTs and abstain from self-dealing and ensure that he or she complies with the requirements prescribed under section 184 of the Companies Act and LODR Regulations (applicable if the joint venture entity is a listed entity) with respect to the disclosure of interest by the directors, primarily in relation to any contract or arrangement by a company, where any such non-compliance may be penalised, including by imprisonment.Competition law
What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?
The merger control provision of the Competition Act 2002 (Competition Act) governs only the acquisition of an enterprise or mergers and amalgamations of enterprises and, as such, the formation or establishment of a joint venture is not specifically covered. However, notifiablity of a joint venture to the Competition Commission of India (CCI) may depend on the manner in which it has been created (ie, through an acquisition, merger or amalgamation). Given that a greenfield joint venture does not own assets or generate any revenue, greenfield joint ventures are typically not notifiable and do not require the prior approval of the CCI under the Competition Act. In contrast, the formation of a brownfield joint venture (where parent companies contribute existing assets or businesses to the joint venture) may be notifiable if the prescribed financial thresholds under the Competition Act are satisfied.
As per the recent amendment to the merger control regulations under the Competition Act, a green channel of approval has been introduced. As per the green channel, if a combination (ie, the proposed joint venture) falls under such category for which the parties to the combination (and their group entities): (a) do not produce similar or identical goods; (b) do not engage in activities which are at a different stage or level of the production chain; and (c) do not engage in any activities that are complementary to each other, then such parties may file a notice, along with a declaration that the proposed combination qualifies under the green channel and is not likely to cause any adverse effect on competition. Post such filings, the proposed combination (ie, the proposed joint venture) will be deemed to be approved.Provision of services
What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties?
As mentioned above, under the TP Regulations, joint venture partners and the joint venture company are likely to qualify as associated enterprises (AEs). Therefore, transactions between two AEs (ie, joint venture partners and the joint venture company) shall have to be conducted at arm’s length. Thus, if a non-resident joint venture partner renders any services to the joint venture, the consideration for the services should be determined at arm’s length. Similarly, if any resident joint venture partner provides any services to the joint venture, the services will be covered in the definition of RPTs. Accordingly, any expenditure claimed by the joint venture in respect of payments made to its resident joint venture partner should not be excessive or unreasonable. Similarly, the joint venture entity, whether incorporated or not, and the joint venture partners, where they directly or indirectly control the joint venture entity, are treated as related persons under the GST legislation in India. Therefore, any supply of services or goods by such joint venture partners to the joint venture entity, or vice versa, would be exigible to GST, even where such supplies are made without any consideration. However, where either the joint venture or the joint venture partners are located outside India, such supplies between them would be taxable under the GST legislation in India, only where the place of supply of such supplies is in India. Further, indemnity payments and mandatory disclosure of related party transactions by companies in India are typically difficult to enforce.
Additionally, if the payment for services rendered by the non-resident joint venture partners are in the nature of royalty or fee for technical services (FTS), then such joint venture partners may be liable to pay tax on their income for these services at the rate of 10 per cent (plus applicable surcharge and cess). However, they may also be entitled to avail of the beneficial provisions of the applicable DTAA. It may be noted that certain DTAAs (eg, India-UK, India-US and India-Singapore) provide for a restrictive definition of FTS and require that the technical knowledge or experience provided by the non-resident should be made available to the Indian recipient (ie, the service recipient is enabled to apply the technology or experience independently without any further assistance from the service provider). Thus, if the services so rendered by the non-resident service provider from specified jurisdictions do not fall within the restrictive scope of the FTS definition under the relevant DTAA, then the joint venture partner may not be liable to pay tax in India on such income, provided the joint venture partner does not have a permanent establishment in India. Taxability of such payments should also be examined in light of GAAR provisions.
Where the consideration paid for the service rendered by a resident joint venture partner is in the nature of royalty or FTS, the joint venture will be obliged to withhold tax at the rate of 10 per cent while making payment or crediting the resident joint venture partner in its books of account.
Indian tax laws also contain thin capitalisation rules, whereby interest payments in excess of 30 per cent of the earnings before interest, taxes, depreciation and amortisation of the Indian company would not be allowed as a deduction against its taxable income. India has also introduced rules pertaining to secondary adjustments in TP-related matters.Employment rights
What impact do statutory employment rights have in joint ventures?
Indian employment laws will apply to joint venture establishments in the same way as they apply to any other establishment, whether it be a factory or a commercial establishment. The key legislation governing the registration and compliance requirements, as well as the conditions of employment in factories and commercial establishments, is the Factories Act 1948 and state-specific shops’ and establishments’ legislation, respectively. There is another employment legislation in India, governing, inter alia, social security, bonuses and insurance, the applicability of which is dependent on the number of employees, location of the establishment, employee salaries, nature of work undertaken, etc. However, there are special provisions under the Employees Provident Fund and Miscellaneous Provisions Act 1952 (the EPF Act), the primary social-security legislation in India, in relation to individuals holding non-Indian passports, and employers may be required to make a greater contribution in relation to such individuals under the EPF Act.
In relation to secondment, it is not uncommon for foreign companies to send their employees on secondment to their Indian subsidiary, and secondment to an Indian joint venture entity will not be very different. In such arrangements, the secondee usually maintains an employment relationship with the foreign entity while also entering into an employment agreement with the Indian entity in order to mitigate against the creation of an Indian place of business, of the foreign joint venture party, under Indian foreign exchange laws (which will then require the foreign joint venture party to register and comply with Indian laws like any other Indian entity), and a similar permanent-establishment risk under Indian tax laws (which could create a tax liability in India for the foreign joint venture party, in relation to its business profits in India).
Additionally, prior to arriving in India, foreign nationals coming to India on business should be careful to procure the appropriate work-related visa. There are two main types of work-related visas that are available: the business visa and the employment visa; and the type of activities that can be carried out under each visa-type is regulated (eg, an individual on a business visa cannot enter into an employment arrangement with an establishment in India). Also, there may be a requirement under Indian immigration laws for the foreign national to be registered with the local authorities, such as the Foreigners Regional Registration Office.
Further, the Indian parliament has recently passed the Code on Wages 2019 (Code) which will consolidate the provisions of four central legislations, namely, the Equal Remuneration Act 1976, the Minimum Wages Act 1948, the Payment of Wages Act 1936 and the Payment of Bonus Act 1965. The objective of the Code is to create a uniform system of governance and ensure that compliance requirements under Indian labour laws can be easily implemented, thereby raising the ease of doing business in India. In furtherance of that objective, the Code seeks to streamline the aforementioned laws. Though the Code received the President’s assent on 8 August 2019, it will be brought into force only once the appointed date for its implementation is notified by the Central Government.Intellectual property rights
How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?
Typically, joint venture partners license their intellectual property (IP) to the joint venture through a licence agreement. In very limited cases, there is an assignment of IP to the joint venture. The choice of mode of transfer is dependent on several factors, such as establishment of the joint venture for a specific duration or purpose, and the trust and confidence shared between the joint venture parties. In relation to the foreign collaboration, previously, monetary caps were applicable on remittances (both royalties and lump sum fees) made for technology collaborations and the licence or use of a trademark or brand name. However, these restrictions have now been removed.
While transferring the IP, the joint venture parties have to be diligent while complying with the provisions of the applicable law to the relevant IP, whether trademark, copyright or patent.
Ideally, the issues relating to the termination of the joint venture and any implications thereof concerning the IP, including both the transferred IP and acquired or developed IP by the joint venture entity, are addressed in the transfer or joint venture agreement. The inclusion of options such as buyout of the IP from the joint venture entity, sale to a third party and division of proceeds, enables a smooth termination of the joint venture arrangement.