If you want to start a new Asset financing company, then not being familiar with all the legalities involving various legal and regulatory processes could prove to be a roadblock for your success. Many new players are trying to enter the Indian market by registering as Vehicle/Asset financing companies in India to utilize its ample resources and business potential. MUDS Management Consultancy Firm helps new businesses in registering as Asset Financing Companies or AFCs or other such Non-Banking Financial Companies (NBFCs) in India with the complete process. 

Read on to know how to start a new Asset Financing Company in India and how MUDS can help you to make the complete process hassle-free. 

How to Start Asset/Vehicle Finance Company 

The Government of India is focussing on accelerating the development of the manufacturing sector under the “Make in India” initiative. To take advantage of this push by the government many new industrial start-ups are entering the Indian market. All these start-ups need financial assistance to buy industrial machinery and related products to set up their manufacturing units across the country. 

This paves way for new asset finance companies to give loans to these manufacturers. Therefore, many new companies are looking to register themselves as NBFCs to establish their place in the market and take advantage of the current situations where the country is looking to boost the overall manufacturing sector. The market of automobiles production is also going through radical changes especially after the arrival of electric vehicles. Hence, vehicle financing is also picking up as the government is planning to revamp its public transport system. Replacement of conventional rickshaws with E-rickshaws is also part that plan and therefore, the demand for E-Rickshaw finance from NBFCs is increasing. All of this makes the prospect of setting up a new Asset finance company a profitable venture. So, if you are looking to set up a new asset financing company then you can contact MUDS Management Consulting Firm to get complete info and all the help to set up your company. Here is the overview of the steps to get started.  

First, you must have the following set of documents ready for registration of your business:

• ID Proof (Could be Aadhar Card, Voter ID Card, Passport or Driving License)
• Copy of PAN Card
• Passport Size Photos 
• Address Proof (Bank Statement, Telephone bill, Mobile Bill, and Electricity Bill)
• Ownership Documents or Rent Agreement for office space
• Electricity bill
• No Objection Certificate from the owner for rented property
• CIBIL records of all shareholder (more than 10% share in Company) and directors
• Education & Experience proof of promoters
• Fixed deposit of Rs. 2 Cr for the Purpose of NOF requirement
• Net worth certificate of directors and shareholders

Now, let’s understand the procedure of starting a new Asset Finance Company in a step by step manner. 

1. Register Your Asset Finance Company Under the Companies Act, 2013. MUDS Management’s legal team helps companies in the registration process with Reserve Bank of India by streamlining the process of collecting all necessary documents and ensuring strict adherence to the policy followed for registration. The Asset Finance Company can be registered as a private or public company depending upon the choice of its founders. 
2. Raise Authorized Paid-up Capital of Up to Two Crores: The company has to raise an authorized and paid-up capital of about 2 crores to meet the required standards of registration.
3. Depositing the Sum in Bank and Getting Certificate: After raising this sum the company is required to open a fixed deposit account in a bank and deposit this money. After this, they must obtain a Certificate of no lien from the bank to move forward with the process of registration. 
4. Getting All the Certified Copies to Complete the Checklist of RBI Registration: The company should compile the following set of documents along with the documents mentioned above to complete the checklist required for registration. 

• Certified Copy of Certificate of Registration
• A copy of Fixed Deposit receipt and bankers’ certificate of lien indicating balances in support of Net Owned Funds.
• Bankers Report for Applicant Company/ group companies
• Certified copy of an extract of the main object clause in the MOA (Memorandum of Association) relating to the financial business.
• Certified Copy of the Board resolution

5. Fill Online Application: Once you have all the documents ready for registration, fill the online application form for NBFC registration as an ASSET FINANCE COMPANY (AFC). After filling the form, the company will get an auto generated Company Application Reference Number or CARN. 
6. Submit the Hard Copy of Application to RBI’s Regional Office: After filling the online application form and getting the CARN for your company, the hard copies of all the necessary and supporting documents must be compiled with the application form. Now, all these documents with the application form should be submitted to the regional RBI Office to complete the process of registration. 

How Muds Management Assist in Registration?

Now, we understand that running a Vehicle/Asset financing firm in India requires registration with the Reserve bank of India. The process for the same is outlined in the above sections.  However, this process proves to be cumbersome and time taking for founders of NBFCs, and therefore, taking assistance from MUDS management can help to save time and the hassle of the registration process. 

Being one of the best management consulting service providers, MUDS management has worked with top NBFCs in India over the years of its operation. With the experience of assisting many clients in legal and regulatory services across different domains, you can rely on MUDS Management to get the best services for your business. You can reach out to MUDS Management Consulting for assistance on new NBFCs registration by contacting them on +91 9599653306 or by email on info@muds.co.in. 

The post How MUDS Management Helps in Registration of New Asset Financing Firms? appeared first on MUDS.

Globalization has made the world shrink and easily accessible to everyone. None of the previous generations have had such opportunities, as we now have, to build a kind of economy that leaves no one behind. The field of trade and communication in our country is no different. It has led to a hike in the tide of offshore investments.

There has been an immense increment in the venture capital investments made by foreign countries in India. To encourage more of it, the government has also made favorable amendments in the rules to enhance effective trade relationships with foreign countries.

The foreign country investing in our country is referred to as Foreign Venture Capital Investors (FVCI). They invest in Indian Venture Capital Undertakings (VCU) and Venture Capital Funds under the regulation of the Foreign Exchange Management and the Securities Exchange Board of India (SEBI) regulations.

Foreign Venture Capital Investors

According to SEBI regulations, “Foreign Venture Capital Investors” can be as:

“An Investor of foreign incorporation or establishment registered under the FVCI regulations and investing in venture capital fund or venture capital undertakings in India.”

It is mandatory for a foreign investor to get itself registered with SEBI before it can invest in India.

Requirements for FVCI

There are three requirements that a foreign investor needs to satisfy before it can start making investments in the venture capital companies in India:

1. It should be incorporated or established in any country outside of India.
2. It should be registered with SEBI as a Foreign Venture Capital Investor.
3. It should work in accordance with SEBI regulations while making investments in VCFs or VCUs in India.
4. After registration with SEBI, further approval of RBI under FEMA regulations is required to make investments in India.

FVCI can be in the form of a company, a body corporate, or a trust.

Eligibility Criteria for FVCI Certificate from SEBI

For obtaining a certificate of recognition as FVCI from SEBI, a foreign investor has to satisfy certain eligibility criteria such as:

• The track record of the applicant
• The professional competence of the applicant
• Integrity and fairness of the applicant
• Its financial soundness
• Experience of market
• Necessary approvals from RBI, etc.

Once the SEBI is satisfied and assured that the applicant fulfills all conditions, it grants registration to the applicant as FVCI which allows him to make investments in the Indian market in accordance to the SEBI rules and regulations. However, SEBI can impose some terms and conditions upon the applicant which can limit its scope of investments in India.

Types of Investments by Foreign Investors

There are two types of investments that a foreign investor can engage in India:

Indian Venture Capital Undertaking (VCU)

VCU is a company incorporated in India but the shares are not listed on India’s recognized stock exchange. But the company should not be engaged in any activity specified under the negative list given by the SEBI. VCUs are generally a newborn private company that is still not established and needs funds, advice and support.

Venture Capital Fund (VCF)

VCF is a fund established as a trust or a company registered with the SEBI. It has a dedicated pool of capital and invests in accordance with the regulations.

A Foreign Venture Capital Investor that is registered with SEBI and has permission from RBI can make investments in both VCU or VCF. Investment can be made by purchasing equity, equity-linked instruments (instruments that are convertible into equity shares or share warrants like convertible preference shares or debentures), debt instruments or debentures.

Investment Limits

A Foreign Venture Capital Investor is permitted to make investments in the following manner:

• An FVCI can invest its 100% funds in a VCF registered under SEBI.
• It is mandatory for it to invest at least 66.67% of its funds in unlisted equity shares or equity-linked instruments of VCUs.

It can invest only 33.33% of the funds by:

• Subscribing to initial public offer of an adventure capital undertaking which has proposed listing for its shares.
• Investing in debt or debt instruments of VCU if it has already invested in the equity of such a VCU.
• Investment in equity shares of a listed company
• Investment in the equity of a financially weak listed company.
• Investment in special purpose vehicles.

In India, an FVCI has a fixed life cycle that has to be mandatorily be disclosed before making any investment. All the investment strategies are also needed to be disclosed prior to making any investments in India.

Obligations and Responsibilities of FVCI

The FVCI needs to follow some general obligations and responsibilities when investing in India. Some of them are:

• They need to maintain books of accounts, records, and documents for a period of eight years which gives a true and fair view of the state of affairs.
• The SEBI needs to be informed in writing about the place where the books, records, and documents will be maintained.
• The SEBI has the power to call for any information regarding any of its activities.
• The query of SEBI should be answered within the time specified by the board.
• The investor needs to enter into an agreement with a domestic custodian for the security of investments made by him.
• A non-resident rupee account or a foreign currency denominated accounts need to be opened in a bank approved by the RBI.

Top 3 Benefits for FVCI

FVCI enjoys some regulatory relaxations from SEBI and RBI if they register under the FVCI regulations (optional). Some of them are:

• Benefit #1: Exemption from the entry as well as the exit pricing norms.
• Benefit #2: Exemption from the lock-in period required when the company becomes public. In other words, FVCIs are allowed to exit the investment immediately after the investee company is listed.
• Benefit #3: Exemption from take-over code in respect of the shares sold by the FVCI to the promoters of the company after it has gone public. This code mandates acquirer to make an open offer on the acquisition of shares beyond prescribed threshold limits.

Procedure for Registration as FVCI

For registering with SEBI as an FVCI, the applicant needs to file an application through Form A and deposit the prescribed fees. In the form details of the sponsor should be filled along with its group, details of registration, website details, etc. Details of the custodian and the bank are also to be filled in. Copy of income tax return and the certificate of incorporation in the home country are to be submitted along with the form.

In addition, some supporting documents are also required:

• Contact details like name, address, email address, etc.
• Details of the directors
• Copy of the Articles of Association and Memorandum of Association
• Proof that any director is not restricted by SEBI
• Documents supporting registration with SEBI or any other regulatory body in India
• Declaration about work experience, educational qualifications, etc of the major players of FVCI
• Detailed investment plan
• Declaration on compliance with SEBI regulations 2000
• A Declaration to prove that you are a fit and proper person

Taxation on FVCI

According to the Income Tax Act, a non-resident assessee can choose to be taxed either under the Indian Income Tax Act or under the Double Taxation Avoidance Agreement(DTAA), whichever is more beneficial.

According to the Income Tax Act, even the non-residents are taxable for the income received or deemed to be received in India, accrued or deemed to be accrued in India or arisen in India. This includes income generated whether directly or indirectly in India from any business connection.

The taxability of FVCI is determined under Section 10 and Section 115U of the Income Tax Act. But both the sections have to be considered simultaneously. FVCI is given the status of a pass-through entity under the Act. The aim of these sections of the Act is to make companies’ taxes and venture capital funds exempt and to provide taxation of the income of the investors when distributed to them.

In simple words, the taxation scheme is to exempt the income while providing for taxation in the hands of the investors. The venture capital company or fund is not taxed on any income that is earned from these investments. But when this income is distributed, it becomes taxable in the hands of the investors.

But this status of “pass-through” for the purpose of the tax treatment of the income depends on the nature of the income. The income in the form of a dividend is tax-free in the hands of shareholders. But, it is subject to a dividend distribution tax of 16.99% that is payable by the company distributing the dividend. Else, a capital gain tax is charged when the shares of the investee companies are sold. Thus, there is no specific tax redemption for FVCI technically.

However, the benefits of DTAA can be availed by the FVCI. With the help of its favorable tax treaty, Mauritius has become the most popular country investing in India. The India-Mauritius DTAA exempts tax in India on the capital gains earned by a Mauritius resident. According to the treaty signed between both companies, when a Mauritius resident transfers an Indian capital asset, such gains are considered taxable only in Mauritius.

Mauritius does not impose any tax on capital gains, thus the taxpayer is in an overall beneficial position. Using treaties like these, many investors have chosen this route to make investments in India as the tax is only payable in their country of residence. According to the rule, if the taxpayer has legitimately reduced his tax liability by taking advantage of such a treaty, the benefit cannot be denied to him on the ground of revenue loss.

Advantages of Foreign Venture Capital Investments

FVCI is important in our country for the promotion of innovation and the conversion of scientific technology and knowledge into commercial production. The recent improvement that has been seen in the area of information technology itself speaks for the potential for growth in knowledge-based industries.

This potential is not limited to information technology but is also applicable to fields like biotechnology, pharmaceuticals, agriculture, drugs, food processing, services, telecommunication, etc.

India has inherent strength by the way of its technology, cost-competitive labor, skilled manpower, environment, and policy support. With funds, it can use these strengths to achieve greater heights in the world economy. Foreign investments can fill this gap between the capital requirements and the funds available from traditional lenders like banks.

Along with the finances, FVCI also brings smart advice, hands-on management support, and skills that help entrepreneurial visions that make up promising marketable products.

Sectors Allowed for Investments

Foreign Venture Capital Investors are allowed to invest in the following sectors:

• IT (Software and hardware)
• Biotechnology
• Nanotechnology
• Seed Research and Development
• Research in pharmaceuticals
• Dairy Industries
• Poultry Industries
• Production of Biofuel
• Hospitality
• Infrastructure

Exit Strategy

The exit strategy is the process through which a foreign venture capital investor gets out of an investment that has been made in the past.

An FVCI can acquire or sell its Indian shares, convertible debt, convertible debentures, convertible preference shares or any other investments at a price that is mutually acceptable to both parties.

This implies that there is no entry or exit price restriction applicable to the FVCI. This is a very important benefit for them when they intend to cash out of the investments.

Conclusion

Foreign Venture Capital Investment is a high-risk activity but the rewards are worth the risk. The investments made yield high returns. The investors do not involve themselves in everyday management and they are generally managed by professionals. The funds used for investments are for a limited life and returns are distributed among the investors.

The growth that India’s economy has seen in recent years and the scope it reflects for future growth have made it a harbor for world-class foreign investors. The change in government policies in favor of global investors, increasing urbanization and rising spending capacity of people in the country also invite foreign investments.

“The trading environment in India attracts the foreign venture capital investors and this will keep getting better in the times to come.”
– Shweta Gupta (CEO, Muds Management Pvt Ltd)

The post Foreign Venture Capital Investors in India – A Study Report by MUDS appeared first on MUDS.

Definition as per SEBI―Alternative  Investment  Fund, AIF Regulations 2012, means  any  fund  established  or  incorporated  in India in the form of a trust or a company or a limited  liability  partnership  or  a body corporate which, is a privately   pooled investment vehicle which collects funds from investors, whether  Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and (ii) is not covered under the  Securities and Exchange Board of  India (Mutual Funds)   Regulations,   1996,   Securities and Exchange Board of India (Collective   Investment   Schemes)   Regulations,   1999   or   any   other regulations of the Board to regulate fund management activities:

Provided that the following shall not be considered as Alternative  Investment Fund for the purpose of these regulations –

1. Family  trusts  set  up  for  the  benefit  of   relatives‘  as  defined  under Companies Act, 1956;
2. ESOP  Trusts  set  up  under  the  Securities  and  Exchange  Board  of  India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999 or as permitted under Companies Act, 1956;
3. Employee  welfare  trusts  or  gratuity  trusts  set  up  for  the  benefit  of employees;
4. Holding  companies‘  within  the  meaning  of  Section  4  of  the  Companies Act, 1956;
5. Other special purpose vehicles not established by fund managers, including securitization trusts, regulated under a specific regulatory framework;
6. Funds  managed  by  securitization  company  or  reconstruction  company which is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
7. Any such pool of funds  which is directly regulated by  any other regulator in India;

Registration Compulsory after commencement of the Act:

Within the period of six months from the commencement of the Act all the existing fund failing within this definition required to get apply for the registration of the same. This period can be extended for the further period up to a maximum of twelve months from the date of commencement of the act provided that existing schemes will be allowed to complete their agreed tenure, such funds shall not raise any fresh monies other than commitments already made till registration is granted.

Exemption to the Investment firms:

1. Existing funds, which do not propose to accept any fresh commitments after commencement of these regulations shall not be required to obtain registration under these regulations subject to submission of information on their activities to the Board in the manner as may be specified.
2. If such existing funds are not able to comply with conditions specified, they may apply for exemption to the SEBI from strict compliance with these regulations and the SEBI upon examination may provide such exemptions or issue such instructions as may be deemed appropriate.
3. Venture Capital Fund (VC) registered with SEBI Act shall continue to be regulated by the said regulation till the existing fund wound up and not launch any new scheme after notification. The existing fund will not increase target corpus of the fund or Scheme. The VC may seek re-registration subject to the approval of 2/3 of the investor’s value of their investments. See how to register as a venture capital fund.

No entity or person will act as an Alternative Investment Fund unless it has obtained a certificate of registration from the Board, any person or entity fails to make application
for grant of a certificate within the period specified therein shall cease to carry on any activity as an Alternative Investment Fund.

CATEGORIES UNDER AIF

The person or entity can seek registration under following categories:

A. Category I Alternative Investment Fund, which invests in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other Alternative Investment Funds as may be specified;

Explanation
─ For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as ―venture capital company or ―venture capital fund as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961

B. Category II Alternative Investment Fund‖ which does not fall in Category I and III and which does not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in these regulations

Explanation
─ For the purpose of this clause, Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator shall be included.

C. Category III Alternative Investment Fund‖ which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

Explanation
─ For the purpose of this clause, Alternative Investment Funds such as hedge funds or funds which trade with a view to make short-term returns or such other funds which are open-ended and for which no specific incentives or concessions are given by the government or any other Regulator shall be included.

How to get registered as an Alternative Investment Fund

1. The Applicant for grant of registration as an Alternative Investment Fund under SEBI (Alternative Investment Funds) Regulations, 2012 should make an application to SEBI in Form A as provided in the Regulations along with all the necessary documents.
2. Generally on receipt of Application, the applicant will receive a reply from SEBI within 21 working days. The time taken for registration however, depends on how fast the requirements are complied with by the applicant.
3. The applicant is advised to go through the SEBI (Alternative Investment Funds) Regulations, 2012 for checking the eligibility criteria and such other details which may help expedite the registration process.
4. The applicant must mention in the covering letter as to whether:
   1. It is registered with SEBI as a Venture Capital Fund. If yes, provide details.
   2. It has been undertaking the activities of an AIF prior to such application. If yes, provide details.
   3. It is applying for registration of a new fund.
5. As an integral part of the registration process, the applicant will submit the following
   1. Form An appropriately filled, numbered, duly signed and stamped.
   2. Application fees of Rs.1,00,000/- by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
6. The applicant shall also make an online application in terms of the guidelines as prescribed by SEBI from time to time.

Grant of Certificate of Registration

1. SEBI shall take into account requirements as specified in the Regulations for the purpose of considering grant of registration. If satisfied that the applicant fulfills the requirements as specified in the Regulations, SEBI shall approve the application and inform the applicant of the same.
2. On receipt of approval from SEBI, the applicant must pay registration fee of Rs.5,00,000/- (If applicant is not registered with SEBI as a Venture Capital Fund) / Re- registration fees (If applicant is registered with SEBI as a Venture Capital Fund) of Rs. 1,00,000/- to SEBI by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.
3. On receipt of registration/ re-registration fees, SEBI will grant the applicant the certificate of registration as an Alternative Investment Fund.

Post- Registration compliance

1. Once registered, the AIF must comply with the reporting requirements as specified by SEBI from time to time.
2. The AIF must regularly check the SEBI website for any updation/ circulars/ guidelines issued from SEBI from time to time with respect to the AIF activity.
3. The AIF must intimate to SEBI any material change in the details already furnished to SEBI within a reasonable period of time.

Post- Registration compliance

1. “The applicant” means the entity seeking registration as an Alternative Investment Fund
2. Application which is incomplete or without the necessary documents/ information/declarations would not be accepted and would be treated as not filed. However, intimation to this effect will be provided to the applicant within a reasonable period of time.
3. Applications involving policy decisions or other considerations might get delayed in processing and in getting registration approvals.Venture capital fund registration gives your aspirations & ideas wings to make your venture work. Venture Capital is a kind of private equity capital offered by outside investors to new businesses. Thus, to foster this process, Muds Management is there to assist you through the in’s & out’s of venture capital fund registration. Contact us for more details
4. Documents/annexure submitted along with the application need to be numbered and duly signed.
5. In case of an Authorized signatory, please submit an authorization letter from the Directors/Trustees/Designated Partners of the Fund.
6. The application in Form A, application fees along with all the necessary information as enumerated above will be addressed to

The Deputy General Manager,

Division of Funds-1,

Investment Management Department, Securities and Exchange Board of India (SEBI), SEBI Bhavan,

Plot No. C4-A, “G’ Block,

Bandra Kurla Complex, Bandra (East), Mumbai – 400051

RECENT AMENDMENT IN THE AIF FUND:

Securities Exchange Board of India (“SEBI”) in its Board Meeting on 23rd November 2016 has approved the following amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 with respect to ‘Angel Funds’. Broadly the proposed amendments are as follows:

1. The upper limit for number of angel investors in a scheme is increased from 49 to 200.
2. The definition of start-up for Angel Funds investments will be similar to the DIPP definition as given in the DIPP start-up policy. Accordingly, Angel Funds will be allowed to invest in start-ups incorporated within five years.
3. The requirements of minimum investment amount by an Angel Fund in any venture capital undertaking is reduced from 50 lakhs to 25 lakhs.
4. The lock-in requirements of investment made by Angel Funds in the venture capital undertaking is reduced from 3 years to 1 year.
5. Angel Funds are allowed to invest in overseas venture capital undertakings upto 25% of their investible corpus in line with other AIFs.

The above proposed amendments will come into effect upon necessary amendments in the SEBI (Alternative Investment Funds) Regulations, 2012.

It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.

Shweta Gupta from MUDS Management is recognized among the most-respected, knowledgeable and yes, pocket-friendly as well.

Why not give a call right now at +919599653306  and start a conversation immediately.

The post Registration of Venture Capital/Angel Fund under AIF Regulations appeared first on MUDS.