Venture Capitalists – Reason and Process for Incorporating
A venture capitalist is a private equity investor who provides capital to companies that are having high potential for growth and earning. And this will be done in return for an equity stake in the company. They do the same by funding start-up ventures or even supporting small business entities with high growth potential and expand the existing business as they do not have access to the equity market.
Venture capitalist firms are formed as Limited Partnership Business Entities. And they have partners who invest in the Venture Capital fund. The entity will be having a committee in the entity, who will be making investment decisions. And on finding viable investment options, the entity or the committee would deploy the investor’s capital fund available with the entity and the firms would then provide them with the equity stake for the capital invested.
For venture capitalists, It should have potential business market and a strong management team as well. They should have a competitive advantage and would be looking for owning a higher stake with the company. Individuals, pension funds, foundations, and corporate pension funds will accumulate their funds in a venture capitalist the investment of which would be controlled by the venture capitalist committee. And they would commit the funds into those entities or ventures which usually are not invested into by banks or other capital markets.
Reason for Incorporating Venture Capitalists
Step 1: Checking for the Eligibility Criteria
The applicant has to submit from A to the SEBI and before this, some of the points would be checked for ensuring compliance with eligibility criteria. This is because no certificate will be issued if the applicant fails to comply with such eligibility criteria. And this would be as follows:
– Check if the company registration document permits the company to carry the activity of ‘Alternative Investment Fund’ or ‘Venture Capital Fund’, for the following should be checked:
- MOA (Memorandum of Association) in case of a company,
- Trust Deed in case of a Trust, and
- Partnership Deed in case of an LLP.
– Check whether the applicant has complied with the following compliances with respect to each type of theirs:
- a) Trust: Instrument of trust – Deed, has been duly registered under the provisions of the Registration Act 1908 as applicable to the same.
- b) LLP: Partnership Deed – which is duly filed with the Registrar of Companies under the Provisions of Limited Liability Partnership Act 2008 and Partnership which is duly incorporated.
- c) Body Corporate: It is setup or established under the laws of the Central or State Legislature. It is also given the permission to carry on the activities of VC Fund.
– Verify whether the following has been complied with by the people who are making the application for the entity:
- a) Check if the person is fit and proper referring to the criteria specified in Schedule II of SEBI regulations 2008,
- b) The necessary infrastructure, and manpower is owned by the entity for discharging its activities or not,
- c) Has the entity described the following during the time of registration or not:
say, the investment objective of their entity, their targeted investors, the proposed corpus, strategy or style of investment, and the tenure proposed for the fund or scheme
- d) Did the Board refuse the Sponsor/Settlor/Applicant with registration before or not.
It should also be noted that at least one key personnel have not less than 5 years of experience in advising or managing pools of capital or in fund or asset or wealth or portfolio management or in the business of buying, selling, and dealing of securities or other financial assets and has relevant professional qualification for the same.
Step 2: Apply to SEBI
An application should be provided in Form A. Which is being provided in the SEBI (Alternative Investment Funds) Regulations, 2012 along with all the other necessary documents as prescribed and this shall include:
- a) Memorandum and Articles of Association copy in case the applicant is set up in the form of a Company (Reg. 4(a)), or
Registered Trust Deed copy shall be provided in case the applicant is set up in the form of a trust (Reg. 4(b)), or
Copy of the Main objective of the constitution in case the applicant is set up in the form of a body corporate. (Reg 4(c))
- b) Investment Management Agreement copy (only if applicable).
– Attach a covering letter with a checklist for the following:
(a) Current status of registration with SEBI as Venture Capital Fund,
(b) History of undertaking activities of VC before this application,
(c) Even if the registration application is made for a new fund or not.
It is to be ensured that the Form A is being appropriately filled, numbered, duly signed, and stamped
Submit an application fee of INR1,00,000/- by way of bank draft in favour
The applicant shall also ensure one major point while making that the said online application is in terms with the guidelines as prescribed by SEBI from time to time.
Step 3: Check for Application Status
The SEBI is satisfied by the details furnished by the applicant, shall approve such application, and grant the registration.
Step 4: Pay Registration Fee
On receipt of approval from SEBI, the applicant must pay a registration fee of INR 5,00,000/- (If the applicant is not registered with SEBI as a Venture Capital Fund) or the Re-registration fees is remitted and which is of INR 1,00,000/-. This shall be done by way of issuing bank draft in favour of, “The Securities and Exchange Board of India”, payable at Mumbai. And this is to be done if the applicant is registered with SEBI as a Venture Capital Fund)
And now as a final step, SEBI can collect a Certificate of Registration from SEBI as Venture Capitalist.