Investment Company

INVESTMENT COMPANY REGISTRATION

In modern approach, NBFCs are classified into three categories:

  • Asset Finance Company
  • Investment Company
  • Loan Company

Investment Company is a type of financial institution whose principal business is related to the acquisition of securities. Reserve Bank of India regulates a company engaged in the acquisition of shares, stock, bonds, debentures or securities as well as a company engaged in the business of loans and advances as a non-banking finance company (NBFC). It is a type of company which deals with the acquisition of stocks, shares, debentures, bonds, debentures or securities as well as a company engaged in loans and advances business as an NBFC.

Now come to the takeover process of Investment Company, here are the following takeover requirements:

Takeover process requires prior approval of the Reserve Bank of India whereas minor changes in the management or control are outside the purview of the approval but in case of significant changes, prior approval of RBI is required to be obtained.

In the following circumstances, prior approval of Reserve Bank of India is required:

  • The Takeover of NBFC or acquisition of control, which may or may not results in the change in management.
  • Variation in the shareholding of an NBFC, which is resulting in 26% acquisition or transfer of the paid-up capital including progressive increases over the period of time.
  • Change in the management by way of change in more than 30% of the directors of the NBFC.
  • Prior approval of RBI will be required in case of acquisition or transfer of shareholding for more than 10%.
  • In case there is a change in shareholding for more than 26% for the reason of buyback/reduction in share capital but this reduction/buyback should have been approved by the competent authority, no RBI approval will be required.
  • No RBI approval will be required in case of a change in the management by 30 % inclusive of Independent Directors or by rotation of the directors in Board.
  • Change in direction of the company requires a prior public notice at least 30 days prior to the announcement of such change.

APPLICATION FOR PRIOR APPROVAL OF RBI

The next step is to make an application to the RBI for the approval on the letterhead of the company along with the following required documents:

  • Information of Proposed directors and shareholders.
  • Information regarding sources of funds required for acquiring shares in the NBFC by the proposed shareholders.
  • Declaration by all the proposed directors and shareholders stating their non-association with any entity accepting deposits.
  • Declaration by all the proposed directors and shareholders stating their non-association with any entity to whom Certificate of Registration is denied by the RBI.
  • Statement regarding non-criminal background as well as non-conviction under section 138 of the Negotiable Instruments Act by all the proposed directors as well as shareholders.
  • Bankers’ Report with regard to proposed directors and shareholders.

An application shall be submitted to the Regional Office of the Department of Non-Banking Supervision in whose control the Registered Office of the NBFC is located. All the queries raised by the RBI shall be timely answered in respect of the takeover so as to avoid any unforeseen delay in the approval. Usually, an application for NBFC takeover goes through a processing time of three to four months in the normal course of business.

Takeover Process in Chart form

Now let’s talk about the requirements which are required to be considered by acquirer before acquiring the target company.

Before acquiring target company, the acquirer must verify that target company has complied with all reporting requirements of the Registrar of Companies, Taxation authorities and Reserve Bank of India, with no tax obligations.

Here are the following documents required for the due-diligence process:

  • Memorandum of Association
  • Articles of Association
  • Certificate of Incorporation
  • Shareholding Pattern
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Tax Registration Certificates
  • Tax Payment Receipts
  • Statutory Registers
  • Property Documents
  • Intellectual Property Registration or Application Documents
  • Utility Bills
  • Employee Records
  • Operational Records

After this, information must be verified from the company master data on the website of the Ministry of Corporate Affairs and inspection can be done.