India has firmly established itself as one of the most attractive investment destinations in the world. With foreign direct investment (FDI) inflows growing from USD 36 billion in 2013-14 to an estimated USD 81 billion in 2024-25, the message is clear: global capital is flowing into India at an unprecedented pace. Behind this surge lies a liberalised regulatory framework, a digitally active young population, and an economy that continues to grow even as much of the developed world faces headwinds.

Yet for every foreign company that considers entering India, one question tends to surface almost immediately: should we set up a wholly owned entity through 100% FDI, or should we partner with an Indian company through a Joint Venture? The answer is not straightforward, and the stakes are high. The wrong choice can result in loss of control, legal entanglements, regulatory complications, and poor returns.

This article takes a comprehensive legal look at both structures, covering approval routes, governance, liability, profit repatriation, exit mechanisms, and the increasingly important role of a specialised venture capital law firm in guiding investors through India's evolving regulatory landscape.

Understanding India's FDI Policy: The Two Routes into the Market

India's FDI policy, administered by the Department for Promotion of Industry and Internal Trade (DPIIT) and governed by the Foreign Exchange Management Act, 1999 (FEMA), channels foreign investment through two distinct routes.

The Automatic Route

Under the automatic route, foreign investors can invest without any prior approval from the Government of India. The only requirement is post-facto reporting to the Reserve Bank of India (RBI) through the Single Master Form (SMF) on the FIRMS portal, within 30 days of share allotment. Over 90% of total FDI inflows into India now come through this route, which covers sectors such as manufacturing, IT services, renewable energy, healthcare, and many others. For companies targeting these sectors, a 100% FDI-owned structure is straightforward and relatively fast to set up.

The Government Route

The government route requires prior approval from the relevant ministry or department before investment is made. This route applies to sensitive or strategically important sectors including defence (beyond 74%), broadcasting, satellite communication, print media, private security agencies, and multi-brand retail (capped at 51% with mandatory state-level approval). In many of these sectors, a Joint Venture with an Indian partner is not merely a commercial preference but a regulatory requirement.

Notably, the 2025 Union Budget opened the insurance sector to 100% FDI, up from the earlier 74% cap, provided that the entire premium is invested within India. This is among the most significant reforms to India's FDI policy in recent years and signals the government's broader intention to continue liberalising investment norms. An experienced venture capital law firm stays abreast of such shifts and can advise on how to restructure or plan investments accordingly.

One critical issue that has gained prominence since 2020 is the requirement of prior government approval for investments from countries sharing a land border with India, such as China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan. Any investment where the ultimate beneficial owner (UBO) is a citizen of or based in these countries requires case-by-case government clearance. This has significantly increased scrutiny of Joint Venture partners and their ownership chains.

Structuring the Joint Venture: What the Law Requires

A Joint Venture in India can take two broad forms. The first is an incorporated Joint Venture, which involves creating a new legal entity or investing in the equity of an existing Indian company. This is the most commonly used model, typically structured as a Private Limited Company under the Companies Act, 2013, due to its limited liability protection, governance flexibility, and investor-friendly compliance structure. The second form is an unincorporated Joint Venture, structured through a contractual cooperation agreement or strategic alliance without creating a separate legal entity. This form is less common in FDI contexts but may suit project-specific or time-bound commercial arrangements.

While a Limited Liability Partnership (LLP) is also permitted under the FDI policy in several sectors, it comes with restrictions in certain industries and is generally less preferred by foreign investors, particularly those backed by venture capital or private equity. Most venture capital law firms advising international investors recommend the Private Limited Company structure for JVs involving cross-border equity investment.

Key Legal Compliance Requirements for a JV Entity

Any incorporated Joint Venture with foreign participation must comply with a web of Indian statutes. The Companies Act, 2013 governs corporate governance, director responsibilities, shareholder rights, annual compliance filings, and statutory audit requirements. FEMA and the FDI Policy govern the modalities of capital infusion, pricing guidelines for share issuances and transfers, and repatriation of profits. The Income Tax Act, 1961 and applicable Double Taxation Avoidance Agreements (DTAAs) determine the tax treatment of dividends, royalties, technical service fees, and capital gains. The Competition Act, 2002 may require prior approval from the Competition Commission of India (CCI) if the proposed Joint Venture meets the prescribed thresholds on combined assets or turnover. SEBI regulations apply where the JV involves listed entities or where its shares may eventually be listed on Indian stock exchanges.

The FDI reporting obligations are strict: share allotments must be reported to the RBI within 30 days, and any JV agreement that modifies the Articles of Association must be filed with the Registrar of Companies. These compliance timelines and procedural requirements make it essential to engage a specialised legal team from day one.

Control and Governance: Who Runs the Company?

For most foreign investors, the question of control is central. The degree of control a foreign investor can exercise depends heavily on the investment structure chosen.

100% FDI: Unilateral Authority

A wholly owned subsidiary gives foreign investors unrestricted authority over all business decisions. They can appoint directors, adopt internal policies, control finances, set brand standards, and manage operations entirely in accordance with their global practices. This structure is particularly valuable for companies where brand consistency, intellectual property protection, and operating standards are non-negotiable. Global technology companies, pharmaceutical multinationals, and premium consumer brands often prefer this model precisely because it eliminates the risk of differing priorities with a local partner.

Joint Venture: Negotiated Governance

In a Joint Venture, governance is a product of negotiation. The equity split typically determines board representation, but many matters are regulated by the Shareholders' Agreement (SHA) and Articles of Association (AoA), both of which are legally enforceable under Indian law. Governance frameworks in well-structured Joint Ventures typically include proportional or equal board representation depending on equity stakes, reserved matters requiring mutual consent such as capital expenditure beyond a set threshold, annual budgets, and new business lines, supermajority or affirmative voting rights for strategic decisions, and clearly defined operational roles for day-to-day management.

In 50:50 Joint Ventures, deadlock is a real risk. Without a well-drafted dispute resolution mechanism, even routine decisions can become contested. A seasoned venture capital law firm will typically insist on including a deadlock resolution ladder in the SHA — starting with escalation to senior management, then mediation, then arbitration, and ultimately a buyout mechanism if all else fails.

Liability and Risk: Who Bears the Burden?

Every investment structure carries a different risk profile, and India is no exception.

In a wholly owned subsidiary, the foreign investor assumes sole responsibility for all financial, legal, regulatory, and operational risks. This includes labour law compliance, taxation disputes, environmental regulations, licencing requirements, and dealings with local authorities. The upside is that risk management remains entirely within the company's control. Companies with robust internal systems, experienced India leadership, and established compliance functions tend to manage this well. For companies that lack this infrastructure, the burden can be substantial.

In a Joint Venture, risk is distributed. The Indian partner often takes on responsibility for local regulatory navigation, supplier and vendor management, labour relations, and interface with state and district-level authorities — areas where familiarity with local practice is invaluable. However, shared accountability also means that if the Indian partner acts in violation of law, breaches contractual obligations, or falls short of quality standards, the foreign investor may face reputational damage, regulatory scrutiny, or indirect legal liability. The risk-sharing advantage of a Joint Venture is therefore only as strong as the integrity, capability, and alignment of the Indian partner.

Profit Sharing, Repatriation, and Tax Considerations

The financial architecture of an investment in India goes well beyond who owns what percentage. Profit repatriation, dividend distribution, royalty payments, and exit returns are all subject to Indian tax law and FEMA regulations.

In a wholly owned subsidiary, 100% of the after-tax profits belong to the foreign investor. Dividends can be freely repatriated subject to applicable withholding tax, and the company's tax position can be managed holistically. For investors backed by a venture capital law firm experienced in cross-border structuring, optimising the holding structure — whether through Mauritius, Singapore, or another DTAA partner jurisdiction — can significantly improve after-tax returns.

In a Joint Venture, profits are distributed in proportion to equity held. A foreign investor holding 60% equity receives 60% of declared dividends. Disputes over dividend policies are among the most common in JV relationships, particularly when one partner seeks to reinvest profits while the other prefers distribution. Transfer pricing rules also apply to related-party transactions between the JV and its foreign partner, including technology licence fees, management service charges, and royalties. These must be disclosed properly and be at arm's length to avoid adverse tax consequences. The 2024 Union Budget's abolition of the controversial angel tax for all classes of investors and the reduction in long-term capital gains tax on unlisted shares from 20% to 12.5% have improved the overall investment climate.

Exit Strategies: Planning the End from the Beginning

Any experienced investor — whether a strategic corporate or a venture capital fund — knows that the terms of exit are as important as the terms of entry. India's legal framework provides several exit mechanisms, but each comes with its own regulatory conditions.

Exit from a Wholly Owned Subsidiary

A foreign investor in a wholly owned subsidiary can exit by selling the business to a strategic buyer, merging with another entity, or winding up the company. The decision does not require the consent of any co-investor, and the investor retains full flexibility over timing and deal structure. Government approval may be needed for sensitive sectors, but otherwise the exit is driven entirely by the investor's commercial priorities.

Exit from a Joint Venture

Exit from a Joint Venture is inherently more complex. The most common mechanisms include rights of first refusal, tag-along and drag-along rights, put and call options, and pre-agreed buyout formulas triggered by certain events such as deadlock, change in law, insolvency of a partner, or failure to meet business plan milestones. Under FEMA, any transfer of shares between a resident and a non-resident must comply with pricing guidelines based on valuation norms prescribed by the RBI. Option contracts — particularly put options which guarantee minimum returns — must be structured carefully to avoid being treated as a forward contract, which would violate foreign exchange regulations.

Disputes over valuation are among the most common causes of delayed or failed exits in Indian Joint Ventures. This is why it is essential to agree on valuation methodology at the time of drafting the JV agreement, and to engage a venture capital law firm that understands both the contractual and regulatory dimensions of exit structuring.

The Joint Venture Agreement: India's Most Important Legal Document for Foreign Partners

In every Joint Venture, the cornerstone of the legal relationship is the Joint Venture Agreement (JVA), supplemented by the Shareholders' Agreement (SHA) and the company's Articles of Association (AoA). These documents, taken together, define the rights and obligations of each party and provide the legal infrastructure for the entire partnership.

A comprehensively drafted JVA should cover the scope of business and agreed business plan including measurable milestones, capital contributions and mechanisms for additional funding, board composition and reserved matter voting thresholds, profit and loss distribution and dividend policy, intellectual property ownership and licensing terms (particularly critical when the foreign partner brings proprietary technology), non-compete and non-solicitation obligations for both parties, triggers for exit and the applicable valuation methodology, confidentiality obligations and data protection compliance, and dispute resolution through arbitration or mediation.

Many foreign investors prefer international arbitration as the mechanism for dispute resolution, often choosing forums such as the Singapore International Arbitration Centre (SIAC) or the London Court of International Arbitration (LCIA). While Indian courts may retain jurisdiction over certain matters, an international arbitration clause provides a neutral and enforceable forum, especially when one party is based outside India. It is worth noting that India has taken significant steps to improve the enforceability of arbitral awards domestically, making arbitration an increasingly reliable option.

The Role of a Venture Capital Law Firm in India Market Entry

The term 'venture capital law firm' has evolved significantly in the Indian context. It no longer refers only to firms that advise venture capital funds making startup investments. It now encompasses any specialised legal practice that advises on high-growth, high-risk investment transactions — including cross-border Joint Ventures, growth-stage acquisitions, and sector-specific FDI structures.

India's venture capital ecosystem has grown substantially. According to Bain & Co.'s India Venture Capital Report 2025, notable investment rounds in 2024 included companies like Zepto, Meesho, Lenskart, and Rapido, and several companies — including Swiggy and Ola Electric — completed successful IPOs. Venture capital deal activity showed a clear uptick in 2024, with investors showing preference for companies with solid unit economics and clear paths to profitability. A specialised venture capital law firm advising in this space is not merely a document drafter but a strategic partner in structuring transactions that are both commercially sound and legally defensible.

Whether you are a global multinational exploring a Joint Venture in India or a venture capital fund investing in an Indian startup, the legal complexities are substantial. A full-service venture capital law firm should be capable of advising on the optimal legal structure for entry, whether 100% FDI or a Joint Venture, conducting due diligence on the Indian partner including UBO verification, FEMA compliance history, and pending litigation, drafting and negotiating the full suite of transaction documents including the JVA, SHA, technology licence agreement, and service agreements, navigating sector-specific regulatory approvals from DPIIT, RBI, SEBI, and the CCI where applicable, structuring tax-efficient holding arrangements and advising on applicable DTAAs, and designing exit mechanisms that comply with FDI valuation norms while protecting investor interests.

Boutique PE/VC law firms operating in India — many of which are now recognised in global ranking publications such as Chambers and Partners and The Legal 500 — have developed deep expertise in navigating the intersection of Indian corporate law, foreign exchange regulations, and private capital markets. Their value lies not just in legal knowledge but in understanding what commercially viable deal terms look like in practice.

Emerging Trends Reshaping JV and FDI Structures in India

The landscape for Joint Ventures and FDI in India is continuously evolving. Several trends deserve attention from foreign investors planning their India strategy.

The clean energy and electric vehicle sectors are seeing a surge in greenfield Joint Ventures. India's National Green Hydrogen Mission, 100% FDI allowance for renewable energy, the FAME India Scheme Phase-II, and the Production Linked Incentive (PLI) Scheme are all drawing foreign capital and technology into JV arrangements with Indian partners who offer manufacturing infrastructure and distribution networks.

The semiconductor manufacturing sector, receiving government support through PLI schemes worth INR 760 billion, is attracting global players such as Foxconn, Micron, and IGSS Ventures. These are predominantly Joint Venture or partnership arrangements, combining Indian regulatory knowledge with foreign capital and chip design expertise.

Global Capability Centres (GCCs) — now numbering over 1,700 in India — are predominantly set up as wholly owned subsidiaries. Japanese, Korean, and Singaporean conglomerates are expanding their GCC presence using 100% FDI, reflecting confidence in India's talent pool and regulatory environment for technology operations.

Finally, the Foreign Venture Capital Investment (FVCI) route provides a separate mechanism for registered foreign venture capital investors to invest in Indian startups with more flexibility around pricing, repatriation, and exit norms than standard FDI. This route has become increasingly important as India's startup ecosystem matures and as global venture capital law firms deepen their India practices.

Conclusion: Strategic Clarity Requires Legal Precision

The choice between a 100% FDI-owned entity and a Joint Venture in India is not one-size-fits-all. It depends on the sector, the level of control desired, the availability of a reliable Indian partner, the regulatory environment, and the long-term commercial strategy of the investor.

A wholly owned subsidiary offers unmatched control, clarity of ownership, and clean exit mechanisms, but demands significant investment in local regulatory navigation and operational setup. A Joint Venture brings local knowledge, regulatory credibility, and shared risk — but only if it is built on a foundation of carefully drafted legal agreements and a genuinely aligned partnership.

In both models, the quality of legal counsel can make the difference between a successful market entry and a costly misadventure. India's legal and regulatory framework is detailed, dynamic, and consequential. Engaging a venture capital law firm with deep experience in cross-border investment, FDI compliance, and Joint Venture structuring is not optional — it is a strategic imperative.

Many global investors have used both models at different stages of their India journey — beginning with a Joint Venture to build local presence and market understanding, then transitioning to full ownership as confidence and regulatory familiarity grow. Others enter with full ownership from day one, particularly in sectors where IP protection and brand consistency are paramount. Neither approach is inherently superior. What matters is that the chosen structure is legally sound, commercially rational, and supported by advisors who understand both the letter of Indian law and the realities of doing business in one of the world's most dynamic markets.