--- title: "Joint Venture vs Subsidiary in India: Which Entry Route Suits a Foreign Company?" date: 2023-03-10 author: "King Stubb & Kasiva" url: https://ksandk.com/startups/joint-venture-vs-setting-up-a-subsidiary-in-india/ --- # Joint Venture vs Subsidiary in India: Which Entry Route Suits a Foreign Company? Posted On - 10 March, 2023 • By - King Stubb & Kasiva ![Two gold chess kings side by side on a dark marble table in a modern office](https://ksandk.com/wp-content/uploads/india-jv-partners-chess-kings.jpg) ### How foreign companies choose between a wholly owned subsidiary and a joint venture in India: control, FDI caps, tax, governance, exit and the questions to settle before signing --- ## 1. The difference between a subsidiary and a joint venture A **subsidiary** is a company controlled by one parent. Under Section 2(87) of the Companies Act, 2013, a company is a subsidiary of another if that other company controls the composition of its board or exercises or controls more than half of its total voting power.[[1]](https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf) A wholly owned subsidiary (WOS) goes further: the foreign parent and its group hold all the shares. A **joint venture** is a business that two or more independent parties own and run together, usually a foreign company and an Indian partner. In India it normally takes the form of a private limited company whose shares both partners hold, governed by a shareholders’ agreement. The two are not mutually exclusive. A joint venture company in which the foreign partner holds 51% is also that partner’s subsidiary. What separates them in practice is control: in a subsidiary the parent decides, and in a joint venture the partners decide together on whatever the shareholders’ agreement reserves for joint approval. ## 2. Joint venture vs subsidiary at a glance | | Wholly owned subsidiary | Joint venture company | | --- | --- | --- | | Ownership | 100% foreign group (one nominee share allowed) | Shared, often 51:49, 74:26 or 50:50 | | Control | Parent appoints the board and decides alone | Board seats and reserved matters split by agreement | | When it is required | Sector allows 100% FDI | Sector cap below 100%, or a local licence, land or customer base is needed | | Capital | Parent funds everything | Partners fund in proportion, or one contributes assets or market access | | Technology and IP | Stays within the group | Needs licensing terms, confidentiality and exit protection | | Legal entity | Indian private limited company | Indian private limited company (or LLP, or a contract) | | Corporate tax | Same as any Indian company | Same as any Indian company | | Exit | Sale, merger or winding up, decided by the parent | Depends on the transfer, option and deadlock clauses | | Set-up time | 5–10 weeks | Same, plus time to negotiate the shareholders’ agreement | ## 3. When a subsidiary is the better choice A wholly owned subsidiary suits a foreign company that wants full control and works in a sector that allows 100% FDI under the automatic route, which covers most of the economy, including IT and IT-enabled services, most manufacturing, e-commerce marketplaces and, since Press Note 1 of 2026, insurance.[[2]](https://dpiit.gov.in/policies-rules-and-acts/press-notes-fdi-circular) - **Control of strategy and IP.** The parent sets the business plan, appoints every director and keeps its technology inside the group. There is no partner to buy out later. - **Simple governance.** The parent’s board resolutions decide matters that would need negotiation in a joint venture. - **Easier restructuring.** A foreign holding company can now merge into its wholly owned Indian subsidiary through the fast-track route with RBI and Regional Director approval, without going to the NCLT.[[3]](https://ksandk.com/corporate/rbi-foreign-holding-mergers-domestics/) - **The cost.** The parent funds the whole operation, builds its own distribution and hires its own team, and it has no local partner to open doors with regulators, landowners or customers. The steps to set one up are in our guide to [foreign company registration in India](https://ksandk.com/startups/foreign-company-registration-in-india/), and the ongoing filings are in our [compliance checklist for foreign subsidiary companies](https://ksandk.com/corporate/checklist-for-foreign-subsidiary-companies-in-india/). ## 4. When a joint venture makes more sense A joint venture is the right structure in three situations. **The FDI cap requires it.** Where foreign investment is capped below 100%, an Indian partner has to hold the rest. Examples include multi-brand retail (51%, government route), print media publishing news and current affairs (26%, government route), and uplinking of news and current affairs TV channels (49%, government route). Defence is open to 74% under the automatic route and above that only with approval. **The partner brings something money cannot buy quickly.** Licences, land, manufacturing capacity, government or institutional customers, and distribution networks in tier-2 and tier-3 cities are the usual reasons. In regulated fields such as healthcare, infrastructure and energy, a partner who has dealt with the regulators for years shortens the path to approvals. **Risk sharing.** A capital-heavy project or a new market the parent is unsure of can be tested with a partner sharing the investment and the downside. The cost is control. Every decision listed as a reserved matter needs the partner’s consent, and when the partners stop agreeing, the business stalls. ## 5. How a joint venture is structured in India [India has no separate law for joint ventures](https://ksandk.com/corporate/joint-ventures-in-india-legal-pros-and-cons/). The arrangement is built from three documents and a few statutory rules. - **The joint venture company.** Usually a private limited company incorporated under the Companies Act, 2013. An LLP is possible in sectors with 100% automatic-route FDI and no FDI-linked conditions. A purely contractual joint venture, with no new entity, suits a single project or a distribution or technology tie-up. - **The shareholders’ agreement.** It sets the shareholding, board composition, quorum, reserved matters needing both partners’ approval, funding obligations, dividend policy, non-compete and confidentiality terms, transfer restrictions (right of first refusal, tag-along, drag-along), deadlock resolution and exit. - **The articles of association.** Rights in the shareholders’ agreement must also be written into the articles. In V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160, the Supreme Court held that a restriction on share transfer not found in the articles does not bind the company or its shareholders. Partners who skip this step often find their carefully negotiated rights unenforceable against the company. - **Ancillary agreements.** Technology licence, trade mark licence, supply and services agreements between the joint venture and each partner, priced at arm’s length. **FEMA rules on exits.** A foreign partner can hold a put option against the Indian partner, but under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 it cannot carry an assured return. The investor must hold the shares for at least one year and can only exit at the fair value prevailing at the time of exit.[[4]](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200) A clause promising a fixed return or a pre-agreed price is unenforceable as drafted, and many joint venture disputes turn on exactly this point. An old restriction no longer applies. Press Note 1 of 2005 required a foreign investor with an existing Indian joint venture to get government approval, in practice the Indian partner’s consent, before starting a new venture in the same field. The consolidated FDI policy removed this condition from 1 April 2011, so a foreign partner can now set up a competing subsidiary unless the shareholders’ agreement prevents it. ## 6. Tax: no difference in the rate, real differences in the details Both a subsidiary and a joint venture company are Indian companies. Both pay corporate tax at 25.17% under the concessional regime, and dividends paid to a foreign shareholder are taxed at 20% plus surcharge and cess, or the lower rate under the applicable tax treaty. Dividend distribution tax was abolished from 1 April 2020, and India has no branch profits tax on subsidiaries, despite older guides saying otherwise. The differences are elsewhere: - **Transfer pricing.** Transactions between a subsidiary and its parent are always international transactions with an associated enterprise and must be at arm’s length. In a joint venture, a foreign partner holding 26% or more of the voting power is also an associated enterprise, so its royalties, service fees and supplies face the same scrutiny. - **Profit extraction.** In a subsidiary, the parent can take money out through dividends, royalties, service fees and interest in whatever mix the tax analysis supports. In a joint venture, every payment to one partner reduces the other partner’s share of profits, so the Indian partner will negotiate each one. - **New Income-tax Act.** The Income-tax Act, 2025 has applied since 1 April 2026.[[5]](https://incometaxindia.gov.in/documents/d/guest/7-formno48-pdf) It renumbers sections and forms but keeps these rates, so agreements and tax clauses drafted with references to the 1961 Act should be updated. Our [tax practice](https://ksandk.com/practice-areas/tax-law-firm/) advises on the intra-group and inter-partner pricing that drives both structures. ## 7. Compliance obligations Compliance is the same for both. Each is an Indian company with a resident director, board meetings, statutory audits, annual filings with the Registrar, FEMA reporting of every share issue and transfer, transfer pricing documentation, GST, the Labour Codes and the DPDP Act. Neither can be a small company if it is a subsidiary of a foreign company. A joint venture adds partner-level obligations: every transfer of shares between the foreign and Indian partners is reported on Form FC-TRS within 60 days and must follow FEMA pricing rules, and if the Indian partner is itself foreign owned, the joint venture’s own investments count as indirect foreign investment. The full calendar is in our [compliance checklist for foreign subsidiaries](https://ksandk.com/corporate/checklist-for-foreign-subsidiary-companies-in-india/). ## 8. Exit and disputes A subsidiary’s exit is the parent’s decision: a share sale, a merger, or a voluntary winding up. A joint venture’s exit depends on what the partners signed. The clauses that matter most are the [deadlock mechanism](https://ksandk.com/corporate/joint-venture-termination-key-considerations/), [call and put options and how they are priced](https://ksandk.com/corporate/exit-strategies-shareholders-agreement/), the valuation method, and the dispute resolution clause. Most cross-border joint ventures choose arbitration seated in Singapore, London or India. The breakup of the Tata–Docomo telecom joint venture shows how this plays out. Docomo’s agreement entitled it to sell its stake for at least half of what it had paid. The RBI would not allow Tata to buy at that price rather than fair value, so Docomo went to arbitration at the London Court of International Arbitration and won an award of about US$1.17 billion. [The Delhi High Court enforced the award](https://ksandk.com/adr/enforcing-foreign-arbitral-awards-india/) in April 2017 on the parties’ settlement and turned down the RBI’s attempt to intervene. The dispute took three years and turned on whether a pre-agreed exit price was compatible with FEMA, which is why exit clauses are now drafted around fair value from the start. ## 9. How to choose: five questions 1. **Does the FDI policy allow 100% in your sector through the automatic route?** If not, a joint venture or government approval is the only option. 2. **Is the investor, or any beneficial owner, from a country sharing a land border with India?** Press Note 3 of 2020 then requires government approval for either structure, subject to the 10% non-controlling exemption in Press Note 2 of 2026. 3. **What does the Indian partner bring that you cannot build in two or three years?** If the answer is only capital or a network you could hire, a subsidiary with commercial agreements (distribution, licensing, contract manufacturing) usually works better. 4. **How much of your technology and brand will the business use?** The more IP involved, the stronger the case for a subsidiary, or for a joint venture with tight licence and exit terms. 5. **What is your exit horizon?** If you may want to buy out the partner or leave within five to seven years, agree the valuation method and option mechanics now, within FEMA’s fair-value rules. Many foreign companies take a middle path: they enter through a wholly owned subsidiary and sign a contractual partnership with an Indian company for distribution or manufacturing, keeping control of the entity while still using a local partner’s reach. ## 10. How King Stubb & Kasiva can help King Stubb & Kasiva advises foreign companies on choosing their India entry structure, negotiating and drafting shareholders’ agreements, FDI and Press Note 3 approvals, incorporation, and the disputes that follow when joint ventures break down. Our [corporate and commercial](https://ksandk.com/practice-areas/corporate-commercial-law/) and [FDI](https://ksandk.com/practice-areas/fdi-in-india/) lawyers work alongside our tax and arbitration teams, so the structure, the agreements and the exit plan are designed together. You can test the options on our [business setup in India for foreign companies](https://ksandk.com/services/business-setup-in-india-for-foreign-companies/) page, which includes a free entry-structure selector. ### Talk to our foreign investment team Tell us your sector, your home country and when you want to start operating in India. Our corporate and FEMA lawyers will set out the right entry structure, the approvals involved, the compliance calendar and a realistic timeline for your case. [Book a consultation](https://ksandk.com/contact-us/) [Message us on WhatsApp](https://wa.me/917428567444?text=Hello%20King%20Stubb%20%26%20Kasiva%2C%20we%20are%20deciding%20between%20a%20subsidiary%20and%20a%20joint%20venture%20for%20India%20and%20would%20like%20to%20discuss%20it.) Or email [info@ksandk.com](mailto:info@ksandk.com) or call [+91 11 41032969](tel:+911141032969). ## FAQs ### What is the difference between a subsidiary and a joint venture? A subsidiary is controlled by one parent company, which controls its board or more than half of its voting power. A joint venture is owned and run by two or more independent partners, who share control through a shareholders’ agreement. A joint venture company can also be a subsidiary of the partner that holds a majority. ### Can a joint venture be a subsidiary? Yes. If one partner controls the board or holds more than half of the voting power, the joint venture company is that partner’s subsidiary under Section 2(87) of the Companies Act, 2013. A 50:50 joint venture is not a subsidiary of either partner unless one of them controls the board. ### Is a joint venture a separate legal entity in India? Only if the partners form a company or LLP for it. A contractual joint venture, such as a consortium for a single project, is not a separate legal entity, and each partner stays liable for its own obligations. ### Can a foreign company own 100% of an Indian company? Yes, in sectors where the FDI policy permits 100% foreign investment, which covers most of the economy. A private company still needs two shareholders, so a group company or nominee usually holds one share. ### Which is better for a foreign company entering India, a subsidiary or a joint venture? A wholly owned subsidiary is usually better where 100% FDI is allowed and the foreign company wants control of strategy and IP. A joint venture is better where the sector cap requires an Indian partner or the partner brings licences, land, customers or distribution that would take years to build. ### Are subsidiaries and joint ventures taxed differently in India? No. Both are Indian companies taxed at the same corporate rates. The differences lie in transfer pricing, which applies to a joint venture partner holding 26% or more of the voting power, and in how profits can be taken out through dividends, royalties and service fees. ### Can a foreign joint venture partner have a put option in India? Yes, but under FEMA the option cannot guarantee a return. The foreign investor must hold the shares for at least one year and can only exit at the fair value at the time of exit. --- ### Sources 1. [https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf](https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf) 2. [https://dpiit.gov.in/policies-rules-and-acts/press-notes-fdi-circular](https://dpiit.gov.in/policies-rules-and-acts/press-notes-fdi-circular) 3. [https://ksandk.com/corporate/rbi-foreign-holding-mergers-domestics/](https://ksandk.com/corporate/rbi-foreign-holding-mergers-domestics/) 4. [https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200) 5. [https://incometaxindia.gov.in/documents/d/guest/7-formno48-pdf](https://incometaxindia.gov.in/documents/d/guest/7-formno48-pdf) *Last Updated on 26 October, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)