INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
Please see 5.2 Main Features and Tax Implica- tions of the Constitution of Each Type of Entity regarding taxation implications for REITs. 5.4 Minimum Capital Requirement There are no minimum capital requirements for companies, LLPs or partnerships. REITs are required to comply with regulations relating to Private limited companies must have at least two directors on their board, while public limited companies need at least three directors. Pub - lic companies also need to comply with addi - tional requirements, such as having independent directors on their board. Companies that have paid-up capital over a prescribed threshold are also required to appoint a company secretary. One-person companies can be incorporated by Indian citizens who are resident in India. It has been proposed that non-resident Indians should be allowed to incorporate one-person compa - nies. LLPs and partnerships are required to have at least two designated partners/ partners. There has been increased attention on compli - ance with ESG (environment, social and gov - ernance) norms in India; although not legally mandated, investors may require companies to undertake certain compliances in this regard. Directors of companies now need to pay heed to environmental issues, and some recent court decisions throw light on such obligations. asset size and minimum offer. 5.5 Applicable Governance Requirements
leasehold or freehold, including any other assets incidental to the ownership of real estate. How - ever, there have been a limited number of REITs since the introduction of the SEBI REIT Regula - tions in 2014. REITs in India are only permitted to be publicly owned – ie, units of the REIT must be listed on stock exchanges. REITs can raise funds through an initial offer to the public and not private place - ments, and subsequently through follow-on offers, rights issues and qualified institutional placements. REITs are mandated to distribute at least 90% of the net distributable cashflows to investors on a half-yearly basis, and to con - duct a full valuation of all REIT assets on a yearly basis through a registered valuer. The SEBI REIT Regulations do not prohibit investment in units by domestic or foreign inves - tors. While there are regulatory restrictions on direct investment in real estate under the Non- debt Rules, investment in REIT units is exempt - ed from the ambit of this restriction for FDI as well as foreign portfolio investment entities. The benefits of using a REIT include the following: • unlocking invested capital for developers, especially in the commercial space; • investors have access to investment opportu - nities in real estate; • net worth and deposit requirements pre - scribed for sponsor and managers ensure that these platforms have sound and stable financial health; • as regulated entities, these platforms provide more confidence to investors; • limitations on the number of investors and the creation of SPVs that apply to private limited companies are not applicable to REITs; and • the mandatory listing of units provides for liquidity and exit opportunity for investors.
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