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INTRODUCTION On  July 20, 2024  the Securities Exchange Board of India (‘ SEBI ’) amended  SEBI (Alternative Investment Funds) Regulations, 2012  significantly. Subsequently,  guidelines  were released by SEBI to these amendments which are particularly concerning the VCFs which were earlier governed under  SEBI (Venture Capital Funds) Regulations, 1996 . The change to the Alternative Investment Funds (‘ AIF ’) Regulations is advantageous to Venture Capital Funds (‘ VCF ’) as it provides more freedom to the VCFs especially in regard to unliquidated investments at the end of the tenures. The changes are in consonance with SEBI’s intention to amend the legal provisions governing the venture capital funds to suit the current market conditions. SEBI has been advancing AIF as an ideal investment vehicle in India which has facilitated all forms of funds including venture capital funds, private equity funds and infrastructure funds. As more investors are inves...

In M&A transactions, legal due diligence often focuses on financial figures, corporate structures, and compliance checkboxes. But here’s a crucial angle that often gets overlooked:  • While reviewing contracts, do we truly recognize their broader implications on the deal’s viability? One of the most underappreciated risks in an M&A deal lies in contractual obligations that may either hinder or enhance the target company's future growth. Take exclusivity agreements or change of control clauses, for example. These can severely limit a company's operational flexibility post-transaction, potentially negating the value of the deal. Consider a scenario where the target company is locked into exclusive supply agreements. Post-acquisition, this could restrict the buyer's ability to expand supplier networks, driving up costs and reducing profit margins. Without catching these red flags early, the buyer might face serious operational challenges after the deal closes. So, what...

One Instrument, Many Hats: Different Laws, Different Perspectives on Financial Instruments In corporate finance, a single financial instrument can take on different identities depending on the legal or regulatory lens through which it is analyzed. One such example is the treatment of Compulsorily Convertible Debentures (CCD), which, despite being a straightforward debt-to-equity instrument, is subject to different interpretations across various laws. 1. Companies Act: CCDs are treated as debt until conversion, after which they are reclassified as equity. Courts have clarified that CCD holders, until the point of conversion, maintain the rights of debenture holders, giving them creditor status. 2. Income Tax Act: CCDs are treated as debt until conversion, with companies claiming interest as a tax-deductible expense. However, disputes have arisen around the valuation of CCDs and the treatment of interest expenses, particularly in cross-border transactions and various judicial precedents ...

Professional Tax Professional tax is a tax levied by state governments on all individuals earning above a specified level, irrespective of whether they are salaried or self-employed. An individual can get a tax exemption under the Income-tax Act, 1961 on the professional tax paid. How Professional Tax is applied in case is employee is working from home (WFH) The applicability of professional tax, the tax rate based on the slabs and other aspects of professional tax differs from state to state. However, there is no clarity if professional tax is applicable if a salaried employee is working from home. What is the criteria for applicability of professional tax in general The main criteria for determining applicability of professional tax is whether the office of the company where the employee is mapped to be working is registered with the relevant state government and has a professional tax registration certificate (PTRC) It is mandatory for the company to register its office (head or bra...

NBFCs in India are regulated by the Reserve Bank of India (RBI). For the purpose of regulating the same, RBI has prescribed certain compliances to be taken care of. Here in this article, we will discuss about the applicable compliance as well as some of the best practices for the compliances that  are applicable to NBFCs in India: Capital adequacy:  NBFCs are required to maintain a minimum capital adequacy ratio of 15%. This means that for every ₹100 of assets, NBFCs must have at least ₹15 in capital. Leverage ratio:  NBFCs are also required to maintain a maximum leverage ratio of 7. This means that for every ₹1 of equity, NBFCs can borrow up to ₹7. Asset classification:  NBFCs are required to classify their assets into four categories: standard, substandard, doubtful, and loss. Assets that are performing well are classified as standard, while assets that are not performing well are classified as substandard, doubtful, or loss. Provisioning:  NBFCs are required ...

What is an NBFC? A Non-Banking Financial Company (NBFC) is a registered company which is engaged in the business of lending and investing.  Lending through multiple modes such as Personal Loans, Home Loan, Gold Loan, Loans against securities,  SME Loans, Educational Loans, Infrastructure Finance etc. Investing means buying of shares, debentures of other securities.  How can I get NBFC banking license? Process in brief: 1. For becoming an NBFC, an application has to be made to the RBI for grant of certificate of registration. 2. This application has to be made by a Company. So first incorporate a Company with the objects of finance and related business you wish to venture into. 3. There is a requirement of net owned fund of Rs. 10 Crore. Make sure of this requirement well in advance. 4. At least one of the directors should have Banking, NBFC or related experience. 5. An application is filed online at xbrl portal of RBI. Earlier it used to be at cosmos portal. 6. There a ch...

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Act of the Parliament of India that was enacted in 2002. The Act has three main objectives: To regulate securitisation and reconstruction of financial assets. To provide for the enforcement of security interest. To provide for a Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).  Securitisation If we go by words, then Securitisation literally means creation of securities, means any process by which tradeable, marketable securities or instruments are created.  But in modern day it has limited its scope now we know it as "Securitisation is a financial process that involves pooling together illiquid assets, such as loans or receivables, and then issuing securities backed by those assets". The securities are then sold to investors, who receive payments based on the cash flows generated by the underlying assets....

What is the meaning of Assets Under Management (AUM) in an NBFC? In an NBFC, Assets Under Management (AUM) refers to the total market value of all the financial assets that the NBFC manages in its books, which generates revenue for it.  This includes two categories:  a) money invested in stocks, bonds, cash, real estate, and other investment vehicles. b) money lent out. AUM is a key metric for NBFCs, as it is a measure of the size and scale of their business. The larger AUM typically means that the NBFC has more assets to invest, which can lead to higher profits. Additionally, AUM can be used to assess the financial strength of an NBFC, as it indicates how much money the NBFC has available to meet its financial obligations. Overall, AUM is an important metric for NBFCs. It is a measure of the size and scale of their business, and it can be used to assess their financial strength and most importantly, AUM can be used to track the growth of an NBFC's business over time. For calc...

In the series of LLP governance structure in India, in this article we will see the taxation structure of LLPs in India, and few points about how an MNC can effectively use LLP in India as an effective vehicle. 3.Taxation of LLP in India LLP’s will be treated as Partnership Firms for the purpose of Income Tax w.e.f assessment year 2010-11. Profit will be taxed in the hands of the LLP and not in the hands of the partners. Income is taxed at a flat rate of 30% + 3% education cess. No Minimum Alternate tax or Dividend Distribution tax is applicable. However, Alternate Minimum Tax is applicable. AMT is levied at 18.5% plus surcharge on adjusted total income of LLP. Deductions to LLP LLP can claim the following deductions as expenses: Interest paid to partners, provided such interest is authorized by the LLP Agreement. Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will be allowed as a deduction if it is paid to a working partner who is an individual. ...

Introduction Gone are the days when the CSR was used to be considered as a selfless donation or philanthropic act. Now the legislature of India wants the Companies (operating in India) to contribute mandatorily for the progress and development of the country. This hard imposition on the corporates may be because of its large structure, revenue generating capacities and unlimited potential in terms of growth, resources and wider presence in the market etc.   Since its inception through the Companies Act, 2013, the concept of CSR has undergone many changes whether deletion of some provision or addition of something, interpretation and clarification by the MCA through circulars from time to time, constitution of high level committee on CSR and adoption of changes suggested by them etc.  Although the term used is Corporate Social Responsibility, but it does not actually apply to each type of corporate. LLPs are still out of the CSR mandate. 1. Definition of Corporate Social Respon...