Market regulator Sebi is likely to prescribe rules for angel funds on June 25, putting in place certain regulations that may not be in the best interest of angel networks.
Television channel CNBC, citing sources reported that the following rules are likely to be implemented
- Angel fund must invest in a company for at least 3 years.
- Angel investors must invest in companies not older than 3 years
- Investee companies must be unlisted with a maximum turnover of Rs 25 cr
- Investee company can’t be related to a group with revenues more than Rs 300 cr
- Angel fund should have no family connections with investee company
- No scheme of angel fund can have more than 49 investors
We think that these rules will be applicable to pooled angel funds that want to apply for “tax pass through,” under the alternative investment fund regulations, 2012.
The finance minister had promised during 2013 budget that angel Investors will be recognized as category I Alternative Investment Funds (AIF) once the Securities and Exchange Board of India comes up with the guidelines. Pass through tax means that the fund itself will not be taxed and each partner will pay taxes individually based on their income from the fund.
These regulations are not likely to affect individual angel investors or individual syndicated deals.
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