Methods of Foreign Trade, страница 6

·  everything aforesaid helps to improve the export base of our country and reduce irrational import by means of import substitution.

If the parties want to form a joint venture, a Protocol of Intent is normally signed. A joint venture becomes a juridical person (legal entity) after it has been registered with the Russian authorities. Only after the registration a company may open a bank account and conclude agreements and contracts in its own name. The most important documents for the application procedure are the foundation documents and the feasibility study.

The foundation documents include the agreement between the partners on the establishment of a joint venture, and the Charter or Statute of a JV. These documents outline the legal status of a JV, the funds raised, management and personnel, and some other provisions.

The feasibility study is jointly prepared by the partners involved. It covers objectives of a company, working capital, a product to be manufactured, marketing possibilities and technical back-up of the project.

A joint venture is managed by a Board of Directors. The Board is represented both by the residents and foreign participants. Foreign partners get the right to substantial participation in running the enterprise and in monitoring the quality of its output. The Board is a governing body. It sets out the strategy of a company.

A joint venture is subject to a tax on its profits. It may have some tax preferences, e.g. be exempt from the profit tax for a certain period of time (this tax holiday begins from the moment profits are first made by a joint venture). After deductions have been made, the rest of the profit is divided between the partners in proportion to the share in the authorized fund belonging to individual participants. The profit of a foreign partner may be placed in the bank, spent within the country or repatriated abroad. Profits may be transferred from Russia to foreign countries in cash or by way of import substitution.

A joint venture is a legal person. It may sue and be sued and may also appeal to Russian and third party courts. A joint venture may be liquidated if its activities are inconsistent with the objectives defined by the foundation documents. In the case of dissolution, foreign participants have the right to recover the initial contribution made to the authorized fund.

Joint ventures certainly have their own advantages if compared to other forms of economic relations between countries. Namely, such companies:

·  turn out to be more effective than purely financial borrowings, as they divide risks and costs between the partners and impel foreign partners to take more active measures to make production profitable;

·  allow the access to new financial resources, new technologies and customers;

·  help to expand and diversify the production;

·  enjoy economies of scale;

·  know the market and market fluctuations better and have a wide well-established marketing network;

·  have their own warehouses in their countries, they may always have the goods and spare parts in stock;

·  have facilities to process the goods additionally and, if necessary, to sort them out and pack.