Variable Capital Companies In India – Key Considerations

Variable capital companies (VCCs), which are pooled private equity fund structures that can facilitate flexible capital management, have been introduced in this year's Union Budget by the Finance Minister, Ms. Nirmala Sitharaman. The concept of a VCC in India has been under discussion for some time, with the International Financial Services Centers Authority (IFSCA) proposing a legislative framework to permit such entities. In October 2022, the Sahoo Committee issued a report outlining a specific legal framework for VCCs within the IFSCs and recommended amending the IFSCA Act, 2019 for this purpose, even while advising against amending the Companies Act, 2013 to recognize VCCs for domestic funds, suggesting instead that VCCs should be initially limited to foreign funds in the IFSCs. This incremental regulatory approach was meant to allow for testing VCC structures in the IFSC before potentially expanding it domestically, a phase-in typical of many corporate reforms