Initial Capital Contributions

• At the time of formation, JV partners agree on their respective capital contributions, which can be in the form of cash, assets, technology, or services.
  
• The contribution ratio typically reflects the ownership percentage and control rights.
  
• The capital structure is formalized in the JV agreement and the Articles of Association (AoA).
  
• Contributions may be made upfront or in tranches based on milestones.
  
• Valuation of non-cash contributions must be supported by independent valuation reports.
  

Equity and Debt Mix

• Funding may be structured as equity (ownership capital) or debt (borrowed capital) or a combination of both.
  
• Equity funding provides voting rights and profit-sharing benefits, while debt funding involves repayment with interest but no ownership dilution.
  
• The choice depends on the risk appetite, tax planning, and return expectations of the partners.
  
• Preference shares, convertible instruments, or shareholder loans are also used for flexible capital infusion.
  
• Debt may be sourced from banks, NBFCs, or partner institutions, with appropriate security and interest terms.
  

Milestone-Based or Phase-Wise Funding

• In long-term or infrastructure JVs, funding is often linked to project phases or development milestones.
  
• Each partner commits to contribute funds as per the agreed schedule or upon completion of defined stages.
  
• This ensures capital discipline, minimizes upfront financial burden, and aligns funding with business progress.
  
• Default in milestone funding may trigger penalty clauses, dilution, or exit options.
  
• Detailed schedules and triggers are annexed in the JV agreement.
  

Third-Party and External Financing

• A JV can also raise funds from external investors, financial institutions, venture capitalists, or bond markets.
  
• Such external funding requires board and shareholder approval, and may lead to dilution of partner holdings.
  
• External lenders often seek guarantees, covenants, and monitoring rights.
  
• If the JV has foreign investment, funding must comply with FEMA regulations and RBI reporting norms.
  
• Subsidies or grants may also be availed if the JV operates in priority sectors or special economic zones.
  

Funding Rights and Dispute Safeguards

• The JV agreement must clearly define rights and obligations of each partner regarding capital calls and additional funding.
  
• If a partner fails to contribute, the agreement may allow the other partner to step in and dilute the defaulting partner’s stake.
  
• It should include clauses for dilution, buy-out, indemnity, or interest on delayed contributions.
  
• Provisions for audit, reporting, and fund utilization ensure transparency and accountability.
  
• Governance rights related to funding, such as veto power or reserved matters, must also be addressed.