What is VCC?

1) ???????? ???? ?? ???????

A variable capital company (VCC) is a body corporate (such as a company or an LLP) with limited liability. The intent is to keep the share capital of the VCC freely variable without the need for any filings and approvals of registrars or regulators. VCC itself is not a license. A VCC wishing to act as an AIF in India will still need to go to SEBI to get an AIF license. A VCC can be an umbrella entity which issues sub-funds or it can be a standalone VCC which invests directly. One sub-fund may be permitted to invest in another sub-fund within the same VCC. VCCs / sub-funds may issue both equity and debt securities.

2) ???????? ???? ???? ?????????? ?????????? ???????????????? ?????????????? ???????????????????

A VCC is a more suitable corporate form for a fund than a company or an LLP but when you compare it to the trust structure (traditionally used in India for AIFs), there may not be many benefits. Some benefits are listed below:

S?e?g?r?e?g?a?t?i?o?n? ?o?f? ?a?s?s?e?t?s? ?a?n?d? ?l?i?a?b?i?l?i?t?i?e?s?: VCC should bring certainty around segregation of ring-fencing of assets and liabilities between different sub-funds (i.e. different schemes of an AIF). At present, trusts are launching different schemes. The AIF Regulations simply impose an obligation on the AIF manager to ensure ring-fencing between different AIF schemes. The mechanism to ring-fence schemes in a trust structure is untested in courts.

D?i?f?f?e?r?e?n?t? ?s?p?o?n?s?o?r? ?a?n?d? ?m?a?n?a?g?e?r?: At present, an AIF launching multiple schemes is required to have the same sponsor and manager across all schemes. If different sponsor and manager are envisaged, then a new AIF is expected to be formed. Perhaps a VCC structure with different sub-funds could allow for different sponsors and managers for each sub-fund within the umbrella VCC, obviating the need for a separate AIF registration.

E?m?p?l?o?y?m?e?n?t?: In a few cases, fund managers have explored employing certain personnel directly at the fund level rather than at the manager level. There was a lack of certainty around whether this can be implemented for a trust structure. However, in case of a VCC, this may be easily implemented.

E?a?s?e? ?o?f? ?m?e?r?g?e?r?s? ?a?n?d? ?a?c?q?u?i?s?i?t?i?o?n?s?: The VCC would (if adopted as proposed by the committees) be eligible to engage in M&A activity within sub-funds (merging one scheme with the other) without NCLT involvement and possibly tax neutrally.

R?e?m?o?v?e? ?m?u?l?t?i?p?l?e? ?i?n?t?e?r?m?e?d?i?a?r?i?e?s?: While they play a vital role in governance and regulation of funds, the need for trustees in the VCC structure will not exist. The board of the VCC will take on the function. Considerable jurisprudence has developed in India around AIFs and trustees have had a remarkable role to play. But some players (especially global players) may look at this as cost avoidance (eg there is no indemnity to be given to one additional party).