AIF manager entity restructuring often involves changes in ownership or control. The Direct Tax Code (DTC) 2025 and the SEBI (Alternative Investment Funds) Regulations, 2012 both address change in control, but with different requirements and implications. Understanding both frameworks is essential for AIF managers considering restructuring. This guide compares the change in control requirements under DTC and SEBI AIF Regulations.
The SEBI AIF Framework for Change in Control
Regulation 19 — Change in Control
Regulation 19 of the SEBI (AIF) Regulations, 2012 addresses change in control of AIF managers:
Regulation 19(1) provides that "No change in the control of the manager of a scheme or of the trustee company or the asset management company of a mutual fund shall be made without prior approval of the Board."
Regulation 19(2) provides that "An application for change in control shall be made to the Board in such form and manner as may be specified by the Board."
Regulation 19(3) provides that "The Board may, after making such inquiry as it deems fit, accord approval to the change in control subject to such conditions as it may deem fit."
Regulation 20 — Transfer of Shares
Regulation 20 of the SEBI (AIF) Regulations, 2012 addresses transfer of shares of the AIF manager:
Regulation 20(1) provides that "No person shall, without prior approval of the Board, transfer shares of the manager of a scheme or of the trustee company or the asset management company of a mutual fund, if such transfer results in change in control."
Regulation 20(2) provides that "The Board may, after making such inquiry as it deems fit, accord approval to the transfer subject to such conditions as it may deem fit."
Key Principles Under SEBI AIF
- Prior Approval Required: Change in control requires prior approval from SEBI
- Application to SEBI: Application must be made in the prescribed form
- Inquiry by SEBI: SEBI may conduct an inquiry
- Conditions: SEBI may impose conditions
- Fit and Proper Person: The new controlling person must be a fit and proper person
The DTC Framework for Change in Control
Section 2(6) — Amalgamation
Section 2(6) defines "amalgamation" in relation to companies, including the merger of one or more companies with another company.
Section 70(1)(zd) — Succession of Firm by Company
Section 70(1)(zd) provides that transfer of a capital asset or intangible asset by a firm to a company as a result of succession shall not be regarded as a transfer, subject to conditions:
- All assets and liabilities of the firm become the assets and liabilities of the company
- All partners of the firm become shareholders of the company
- Partners do not receive any consideration other than shares
- The aggregate shareholding of partners is not less than 50% for five years
Section 70(1)(ze) — Conversion of Company to LLP
Section 70(1)(ze) provides that transfer of a capital asset or intangible asset by a private company or unlisted public company to a limited liability partnership shall not be regarded as a transfer, subject to conditions:
- All assets and liabilities become the assets and liabilities of the LLP
- All shareholders become partners of the LLP
- Shareholders do not receive any consideration other than share in profit
- The aggregate profit sharing ratio is not less than 50% for five years
- Total sales, turnover or gross receipts do not exceed ₹60 lakh
- Total value of assets does not exceed ₹5 crore
Section 116 — Amalgamation and Demerger
Section 116 provides for the treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger.
Section 313 — Succession to Business or Profession
Section 313 provides for assessment of income in the case of succession to business or profession otherwise than on death.
Key Principles Under DTC
- Tax Neutrality: Certain restructurings are tax-neutral under the DTC
- Conditions Apply: Tax neutrality is subject to specific conditions
- Capital Gains: Change in control may trigger capital gains tax
- Losses: Accumulated losses may be carried forward subject to conditions
Comparison of Change in Control Requirements
| Aspect | DTC | SEBI AIF Regulations |
|---|---|---|
| Approval Required | Tax-related consequences | Prior approval required from SEBI |
| Authority | Income-tax authorities | SEBI |
| Focus | Tax implications | Regulatory compliance, fit and proper |
| Timing | Assessment of tax consequences | Prior approval before change |
| Conditions | Conditions for tax neutrality | Conditions for regulatory approval |
| Penalties | Interest, penalty, tax adjustment | Regulatory action, penalties |
Practical Considerations for AIF Managers
1. Identify the Change in Control
- Determine whether the restructuring results in a change in control
- Under DTC: Consider tax implications
- Under SEBI AIF: Consider regulatory requirements
2. Obtain SEBI Approval
- Apply to SEBI for approval of the change in control
- Ensure all conditions are met
- Comply with all requirements
3. Consider Tax Implications
- Consider capital gains tax implications
- Consider treatment of accumulated losses
- Consider transfer pricing implications
- Consider GAAR implications
4. Ensure Compliance with Conditions
- Under DTC: Ensure conditions for tax neutrality are met
- Under SEBI AIF: Ensure conditions for regulatory approval are met
5. File Required Returns
- File tax returns as required
- File regulatory returns as required
Consequences of Non-Compliance
Under SEBI AIF
- Regulatory action by SEBI
- Penalties
- Suspension or cancellation of registration
- Reputational damage
Under DTC
- Tax on capital gains
- Disallowance of losses
- Interest and penalty
- Transfer pricing adjustments
Best Practices
1. Plan Ahead
- Plan the restructuring well in advance
- Consider both DTC and SEBI AIF requirements
- Seek expert advice
2. Obtain Required Approvals
- Obtain SEBI approval before implementing the change
- Ensure all conditions are met
3. Document the Restructuring
- Maintain comprehensive documentation
- Document the commercial rationale
- Document compliance with all requirements
4. File Required Returns
- File tax returns on time
- File regulatory returns on time
- Ensure all information is accurate
5. Monitor Compliance
- Monitor ongoing compliance with conditions
- Update documentation as necessary
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on AIF manager entity restructuring and change in control compliance. Our securities law and direct tax experts help AIF managers understand the requirements, obtain approvals, and navigate the regulatory framework. We assist in restructuring planning, approval applications, and compliance monitoring.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on change in control compliance or any other matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex change in control framework for AIF managers requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive securities law and direct tax advisory services, including:
- Restructuring Planning: Guidance on compliant restructuring
- SEBI Approval: Assistance with SEBI approval applications
- Tax Advisory: Guidance on tax implications
- Compliance Monitoring: Assistance with ongoing compliance
Contact us for expert legal guidance on your AIF manager restructuring matters.