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27

               Securities and Exchange Board of India

entities.

7.1.4Recommendations

In view of the above background the following recommendations  are proposed:-

(a)

The necessary legislative provisions for incorporation of entities such as Limited Partnership(LP), Limited Liability Partnership(LLP), Limited Liability Company(LLC) may be made by way of enactment of separate Act or by way of amending the existing Indian Partnership Act and Indian Companies Act.

(b)

SEBI Regulations should be amended to include the eligibility for registration of other entities such as LP, LLP, LLC, etc. as and when permitted to be incorporated under the respective statutes.

(c)

SEBI Regulation should be amended to include a provision for registration of  scheme floated or funds set up by a Trust, Company, Body Corporate or any other entity.

(d)

The Indian Companies Act be amended so as to permit issue of shares by unlisted limited companies with differential right in regard to voting and dividend. Such a flexibility already exists under the Companies Act in the case of private companies which are not subsidiary of public limited companies.

7.2Flexibility in the matter of investment ceilings and sectoral restrictions

7.2.1Venture capital Investments falls under high risk category of investment and typically it comes from high networth sophisticated and long term investors and institutions. The basic dictum in VC investments therefore is that "Money finds its best use" as the investors and fund managers are expected to be expert, sophisticated and fully aware of the risk / return potentials. Unlike several other type of investments, venture capitalists provide fund to build up resources and enterprises. Because of the very nature of VC  investment and type of investors involved, a high degree of flexibility in terms of selection of investment, instruments and terms of investment is required. Internationally also, venture capital industry has developed in an environment which provides such investment flexibilities.

7.2.2In the present regulatory requirements, there are sectoral restrictions as well as various types of investment ceilings. Sectoral restrictions for investment by VCFs are not consistent with the very concept of venture in promotion of innovation and technology as innovation and technology based ideas could emerge in any area of

Report of K B Chandrasekhar Committee on Venture Capital27

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