In growing business, many promoters / investors may like to create holding company for investing in subsidiary/joint venture company, with an objective to keep shareholding of investee company pretty simple and with less interference from the shareholders who are of different background and with difference financial objectives, In India we can have following three options wherein we can structure of holding and subsidiary and keep arm’s length distance of shareholders from the direct management of company, and provide them rights in holding company without interfering in subsidiary day to day management.

I.    Core Investment Company (CIC) : 

The CICs, which have an asset size of Rs. 100 crore and above, can carry on the business of acquisition of share and securities subject to certain conditions:

• The CIC are limited companies that hold equity shares, and also preference share or debentures in other group companies, very often these companies are primarily establishing as group business and they control the subsidiaries through holding majority shareholding.

A group company is an arrangement which involves two or more entities related to each other through any of these relationship, joint venture, subsidiary, associate, a related party, promoter-promotee for listed companies, common brand name and investment in equity shares of 20 % and above.

In other words, a CIC is essentially a company which holds the stake in the group companies without practically being involved in its trading.

The CIC can’t not accept public deposits, without the RBI permission.  At the same time public funds excludes funds that are raised by issue of instruments compulsorily convertible into equity shares within a period of not exceeding 10 years for the date of issue. 

The CIC are permitted to invest their surplus funds in liquid fund schemes.

II.    LLP Structure

The LLP structure was introduced primarily keeping in mind operating companies, and not holding and investment companies.  

Even though the LLP Act is intended to give smaller businesses and entities like law firms, and accountancy partnerships a flexible business structure followed in many countries, there is nothing in the law that stops big businesses from rejigging their holding and investment companies into LLPs.

If the LLP is investing only its own surplus funds in the investment activities and it has not taken any deposits and it is having income from investment such as gain on sale of investments, dividend on shares which happens to be more than 50% criteria, even then it should not be treated as doing NBFC business as long as it is not receiving deposits or doing lending activities and not earning anything out of the same. RBI Act does not specifically restrict the LLP to invest its funds. LLP can invest its own funds for investments.

III.    Alternate Investment Funds (AIFs)

Aalternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

AIF as a fund established or incorporated in India in the form of a Limited Liability Partnership (LLP) or Company or Trust or Body Corporate which- It is a privately pooled investment vehicle that gathers funds from investors, including Indian investors and foreign investors, to invest it as per a defined investment policy to benefit its investors.

There are different categories of AIFs based on their objectives as well as the forms. SEBI has divided them into 3 categories for the purpose of granting registration: 

Category I – 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 by SEBI time to time. 

Category II – which does not fall in Category I and III and which does not undertake leverage or borrowing other than to meet day-today operational requirements. This category includes the private equity funds (which invests primarily in equity or equity linked instruments or partnership interests of investee companies according to the stated objective of the fund) as well as the debt funds (which invests primarily in debt or debt securities of listed or unlisted investee companies according to the stated objectives of the Fund). A minimum tenure of the funds or schemes is 3 years. 

Category III – which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.

For an AIF, there are different stakeholders in the form of manager, investor, sponsor, trustees, Valuer, and the like Manager (or an Investment Committee) is responsible for taking the investment decisions. In case of investors, while both the Indian and foreign residents and non-residents can invest, their minimum investment size is INR 1 crores. Each scheme is required to have a minimum corpus of INR 20 Crores. 

The funds can be raised only by way of private placement and from a maximum of 1000 investors per scheme.

Registration process

•    Application shall be made with category in Form A of first schedule along with necessary documents.
 
•    The registration application should be accompanied by a non-refundable application fee as stated in Part A and paid in the manner stated in Part B of the Second Schedule of the Regulations. The fees for a Category II fund are INR 10,00,000. 

•    The SEBI will grant the Certificate of Registration of Alternative Investment Fund to the applicant in Form B. 

•    This Registration Certificate will be valid till the Alternate Investment Fund is wound up.