Foreign Venture Capital Investor Registration

Foreign Venture Capital Investment is an important source of funding for start-ups and new businesses who have limited to no access to capital markets. It is a high-risk, high-return investment that fulfils the financial requirements of start-ups and new businesses. For making Foreign Venture Capital Investments in Ind..

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An Overview of Foreign Venture Capital Investor Registration

In the present scenario, foreign investments are witnessing an exponential rise. In order to explore international markets, investors are making cross-border investments. Even the Government of every country is making efforts to increase efficient trade and commerce relationships with other countries as it will enhance the economy of the country. Foreign Investments are governed by Foreign Exchange Management Act (FEMA) along with regulations framed under it. As the Securities Exchange Board of India (SEBI) is the regulatory body that regulates the securities market in India, the Securities Exchange Board of India Act, 1992 along with the regulations framed under it are also applicable to foreign investments.

One such kind of foreign investment is foreign venture capital investments. These are foreign investments in venture capital. To boost investments in venture capital, the Government of India has time and again liberalized the regulatory laws. In 2000, SEBI introduced the SEBI (Foreign Venture Capital Investors) Regulations, 2000 which has been amended from time to time. SEBI (FVCI) Regulations, 2000 provides that for the process of registration of Foreign Venture Capital Investors (FVCI) in India to avail benefits from such investments. As per the SEBI (FVCI) Regulations of 2000, an investor who is incorporated and established abroad but is registered in India under these regulations to make investments as per these regulations is known as FVCI. In simple words, when a foreign investor invests in Venture Capital in India it is called FVCI. FVCIs invest only in Venture Capital Funds which are registered with the SEBI. To invest in Venture Capital Funds, the FVCIs should also be registered with SEBI. Let's understand the process of foreign venture capital investor registration in India and how Enterslice assists in the registration process.

 

Types of Foreign Venture Capital Investment in India

A registered FVCI can invest in the following:

  1. Indian Venture Capital Undertaking (IVCU)

IVCU is defined as a company incorporated in India but whose shares are not listed on a recognized stock exchange in India. Generally, IVCUs are companies that require financial support to establish themselves in the market.

  1. Indian Venture Capital Fund (VCF)

These are funds established in the form of a company, trust or body corporate and are registered either under the SEBI (Alternate Investment Fund) Regulations, 2012 or under the erstwhile SEBI (Venture Capital Fund) Regulations, 1996. VCFs usually pool capital raised by them and invest as per the regulations. VCFs can also invest in IVCUs.

 

Eligibility Criteria for Foreign Venture Capital Investor Registration in India

The foreign investor/ applicant who is willing to register as a Foreign Venture Capital Investor in India should satisfy the following eligibility criteria:

  • The applicant should have a good track record, professional competence, financial soundness, experience and a general reputation of fairness and integrity.
  • The applicant should have been granted the necessary approval from the Reserve Bank of India for making investments in India.
  • The applicant should be an investment company, investment partnership, investment trust, mutual fund, pension fund, endowment fund, charitable institution, or any other institution incorporated outside India.
  • The applicant should be an asset management company, investment management company or investment manager, or any other investment vehicle incorporated abroad.
  • The applicant should be authorized to invest in a venture capital fund or carry out the activity as FVCI or Alternate Investment Fund (AIF).
  • The applicant should be regulated by the appropriate foreign regulatory authority if it is an entity. If the applicant is an individual then he/she must be an income taxpayer. If the applicant is neither a regulated entity nor an income taxpayer, then a certificate from its banker should be submitted.
  • The applicant should not have been denied/refused the certificate of registration from SEBI earlier.
  • The applicant should be a fit and proper person. The criteria for a fit and proper person is prescribed in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

 

Information to be provided by the applicant for Foreign Venture Capital Investor Registration

While making an application for registering as an FVCI, the applicant has to provide the following information:

  • Name, address and contact details of the applicant.
  • Details of the representative office in India, if any.
  • The category of investment vehicle to which the applicant belongs. For eg; Pension funds, Mutual Funds, Investment Funds, Investment Companies, Investment partnerships, Asset Managers, etc.
  • Date and place of incorporation of the applicant.
  • Brief description of the principal activities of the applicant.
  • necessary papers such as a certificate of registration from the regulator in the home country or income tax return filed in the home country or a bankers certificate providing a fair track record of the applicant.
  • A necessary paper providing information regarding violation or non-adherence to securities law, code of conduct or business rules for which the applicant has been subjected to economic or criminal liability or suspended from carrying out its operations or for which the registration was revoked either permanently or temporarily. If there have been no such instances, then an undertaking has to be submitted.
  • Name of clients on behalf of whom the FVCI will invest in India.
  • Details of the designated bank in India through which the investment shall take place.
  • Details of domestic custodian.
  • Financial statements of the year preceding the financial year in which the application is made.
  • Details of all the investors.

 

Process of Foreign Venture Capital Investor Registration

  1. Application for grant of certificate of registration

The eligible applicant should make an application to SEBI in Form A provided under First Schedule to the SEBI (FVCI) Regulations, 2000. The application should specify all the details sought in the Form. Further, the application form should be accompanied by an application fee of USD 2100. The application fee shall be payable either by way of direct bank transfer i.e; NEFT/RTGS/IMPS or by way of online payment using the SEBI Payment Gateway or any other mode as may be prescribed by SEBI from time to time.

  1. Review of Application

On receiving an application for grant of certificate of registration, SEBI shall review and examine it. If required, the SEBI may call for further information to be furnished before it. SEBI shall also examine if the application is complete in all aspects.

  1. Acceptance or Rejection of the Application

If after the review of application, SEBI is satisfied with the application then it shall send an intimation to the applicant accepting the application. On the other hand, if the application is not satisfactory or is incomplete, SEBI may reject the application. However, the application can be rejected only after giving an opportunity to the applicant to remove the objections indicated by SEBI within 30 (thirty) days from the date of intimation of the objections. Furthermore, SEBI may extend the period of 30 (thirty) days if it considers it necessary but it should be more than 90 (ninety) days cumulatively.

  1. Grant of certificate of registration

 If SEBI sends an intimation to the applicant regarding acceptance of the application, then the applicant has to pay the registration fee of USD 8500. After receiving the registration fee, SEBI will grant a certificate of registration.

  1. Refusal to grant a certificate of registration

If the applicant fails to remove the objections raised by SEBI within the prescribed time period or if the application is otherwise not satisfactory, the SEBI may reject the application made by the applicant. However, before rejecting the application, SEBI may provide the applicant with a reasonable opportunity to be heard. Only after that can the final decision rejecting the application be communicated to the applicant. Once the application has been rejected, the applicant cannot carry out any activity as an FVCI.

 

Online Filing System for Foreign Venture Capital Investments Registration in India

To facilitate ease of operations, SEBI has also introduced an online filing system for making application for registration, reporting and fulfilling various compliance under SEBI (FVCI) Regulations, 2000. This online filing mechanism was introduced by SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2017/75 dated 6th July 2017. The applicants seeking registration as an FVCI have to follow the following steps for online application:

  1. The applicants are required to visit the SEBI Intermediary Portal at https://siportal.sebi.gov.in/. All applications for registration of FVCI are to be made via this portal only.
  2. The applicant has to self-register by filing the details sought for in the application.
  3. After submitting an application for registration, the login-in ID and password will be generated and it will be sent to the email if of any one of the directors of the applicant.
  4. After receiving the login-in ID, the applicant's director has to fill in all the details by clicking on 'Fresh Registration' under the tab of FVCI available on the portal.
  5. After carefully filling in all the details, the applicant has to submit the online application by clicking the 'Final Submit' button and paying the application fees.
  6. If the application is satisfactory, the SEBI shall send an intimation regarding the acceptance of the application through email.
  7. Once SEBI approves the application. The applicant has to pay the requisite registration fee and fill in the fee details on the link provided by SEBI in the email.
  8. On successful receipt of the registration fee, SEBI shall issue the certificate of registration.

 

 

Frequently Asked Questions

FVCI means a foreign investor who is registered under the SEBI (FVCI) Regulations, 2000 and proposes to make investments in Venture Capitals as per the regulations.

FVCIs can invest upto 66.67% of their funds in unlisted equity shares or equity-linked instruments of venture capital undertaking or Investee Company and up to 33.33% of its funds in securities specified in Regulation 11 of SEBI (FVCI) Regulations, 2000 as amended from time to time. FVCI can also invest its total funds in AIFs registered under the SEBI (AIFs) Regulations, 2012 or Venture Capital Fund (VCF) registered in the erstwhile SEBI (VCF) Regulations, 1996.

Under the Second Schedule of SEBI (FVCI) Regulation, 2000, the Registration fee payable for registration of an FVCI is USD 8500/- along with GST at the rate of 18%.

Yes. FVCIs are required to enter into an agreement with the domestic custodian who shall act as a custodian of securities for FVCI. The domestic custodian is required to monitor investments of FVCI in India, furnish periodic reports to SEBI and furnish such other information as may be called for by SEBI.

In accordance with Regulation 13(1) of SEBI (FVCI) Regulation, 2000, all FVCIs are required to submit a quarterly report on venture capital activity to SEBI. On behalf of the FVCI, it is the domestic custodian who is responsible to submit the report on time. The report has to be uploaded on the SEBI online portal within 7 (seven) days from the end of each quarter of the calendar year.

SEBI may suspend the certificate of registration granted to an FVCI, if the FVCI contravenes any of the provisions of the SEBI Act, 1992 or any regulations framed thereunder; or FVCI fails to furnish any information sought by the SEBI; or furnishes false or misleading information; or fails to submit the periodic returns and reports; or does not co-operate with SEBI in any inquiry or inspection.

SEBI may cancel the certificate of registration granted to an FVCI, if the FVCI is found guilty of fraud or has been convicted for an offence involving moral turpitude, or it is guilty of multiple defaults; or if FVCI ceases to meet the eligibility criteria specified in the SEBI (FVCI) Regulations, 2000; or if FVCI contravenes the provisions of SEBI Act or any Regulations framed under it.

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