Setting up an SPV in India involves more than just registering a company; it requires choosing the right legal structure, complying with regulatory requirements, and aligning the setup with the investment’s scope and risk profile.
Common in infrastructure, real estate, and private equity deals, SPVs offer flexibility and control, but require careful setup to comply with Indian laws.
This guide explains:
- What is SPV in India?
- Who can form an SPV in India?
- What is the Special Purpose Vehicle under Companies Act 2013 in India?
- What are the risks of SPV?
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Le informazioni contenute in questo articolo hanno un valore puramente indicativo. Non costituiscono consulenza finanziaria, legale o fiscale e non rappresentano una raccomandazione o una sollecitazione a investire. Alcuni fatti potrebbero essere cambiati dal momento della stesura.
What is an SPV in India?
An SPV in India, or Special Purpose Vehicle, is a legally distinct entity formed to achieve a narrow and well-defined objective typically to hold assets, raise capital, or carry out a single project while isolating financial and legal risk from the parent company or investors.
What is an example of SPV in India?
SPVs are used across several sectors in India, particularly where financial separation or regulatory clarity is critical.
Examples are:
- Infrastructure Projects: Large public-private partnerships (PPPs), such as highway or solar farm developments, often use SPVs to manage project-specific financing and operations.
- Real Estate Development: Builders and developers form SPVs for individual projects to keep financing, ownership, and risk segregated.
- Securitization in Banking and NBFCs: Financial institutions transfer loan portfolios to SPVs, which then issue pass-through certificates to investors.
- Private Equity and Venture Capital Platforms: SPVs are used to pool capital from investors for a single investment or deal, simplifying governance and returns distribution.
How to Create an SPV in India
Step 1: Choose the Legal Structure
The first step is selecting the appropriate entity type based on your objectives:
- Private Limited Company – Most common, offering limited liability, a defined governance model, and easier access to equity capital
- Limited Liability Partnership (LLP) – Favored for flexibility and lower compliance in smaller ventures
- Trust – Often used in asset securitization or estate planning, though less suited for commercial operations
Your choice will depend on factors such as:
- Liability exposure and asset protection
- Tax implications, including profit distribution and indirect taxes
- Investor profile, especially if involving foreign or institutional stakeholders
- Governance needs and decision-making structure
Step 2: Register with Relevant Authorities
Once the structure is decided, registration must be completed with the appropriate regulatory bodies:
- File incorporation documents with the Ministry of Corporate Affairs (MCA)
- Obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Goods and Services Tax (GST) registration, if applicable
- Secure sector-specific licenses or clearances (e.g., RERA for real estate, RBI approval for financial SPVs)
Step 3: Draft Foundational Documents
Foundational legal documents set the scope and framework for SPV operations:
- Draft the Memorandum of Association (MoA) and Articles of Association (AoA) outlining the SPV’s objectives and governance rules
- Prepare shareholder agreements, trust deeds, or LLP agreements, depending on the entity type
- Ensure all regulatory disclosures and filings are submitted on time to avoid penalties
Step 4: Capitalization and Bank Accounts
Financial setup is critical for operational readiness:
- Infuse the agreed-upon share capital or trust corpus
- Open operational and escrow bank accounts as needed, especially for investor contributions, debt servicing, or project disbursements
Step 5: Compliance and Ongoing Management
Ongoing legal and financial compliance is essential for maintaining the SPV’s integrity:
- File annual returns and financial statements with the Registrar of Companies (RoC)
- Conduct board meetings, maintain statutory registers, and ensure audits are performed
- For foreign-funded SPVs, comply with FEMA reporting requirements, including FCGPR/FC-TRS filings and sectoral caps
What is the Special Purpose Vehicle Law in India?
While there is no single law titled “SPV law” in India, the creation and governance of a special purpose vehicle in India are shaped by several key legislative and regulatory frameworks.
The specific rules that apply depend on the SPV’s structure, purpose, and industry.
Companies Act 2013
Most SPVs in India are set up as private limited companies and are therefore governed by the Companies Act, 2013.
This legislation outlines:
- Incorporation requirements (MoA, AoA, directors, capital structure)
- Reporting obligations, including annual filings with the Registrar of Companies (RoC)
- Statutory audits, board meetings, and disclosure requirements
RBI and SEBI Oversight
For SPVs involved in financial transactions or capital markets:
- The Reserve Bank of India (RBI) regulates SPVs used in securitization, external commercial borrowings (ECBs), and certain NBFC activities
- The Securities and Exchange Board of India (SEBI) oversees SPVs linked to Alternative Investment Funds (AIFs), REITs, InvITs, or those issuing debt instruments to public investors
FDI, Taxation, and Reporting
SPVs receiving foreign direct investment (FDI) must comply with the Foreign Exchange Management Act (FEMA) and relevant RBI guidelines.
Additional regulatory considerations include:
- Sector-specific FDI caps and approval routes
- Tax implications under Indian Income Tax Act
- Transfer pricing and GST, where applicable
Insolvency and Bankruptcy Code (IBC)
If an SPV faces insolvency, the Insolvency and Bankruptcy Code (IBC), 2016 applies.
However, SPVs with no real operations (e.g., holding companies) may fall into a regulatory gray area, which can affect resolution timelines and creditor rights.
Together, these laws and oversight mechanisms form the backbone of how SPVs are created, operated, and regulated in India.
What Are the Disadvantages of SPV?
Poorly structured or mismanaged SPV in India can expose investors and sponsors to unintended risks.
1. Complexity and Cost of Setup and Maintenance
Establishing an SPV in India involves multiple steps.
Legal, compliance, and administrative fees can add up quickly, especially in regulated sectors like immobiliare or finance.
2. Regulatory Scrutiny and Compliance Burden
SPVs often attract heightened regulatory oversight, particularly when linked to cross-border transactions, financial instruments, or foreign direct investment.
Regular reporting to authorities is mandatory and missing deadlines can lead to penalties or operational restrictions.
3. Limited Scope Reduces Flexibility
By design, an SPV is created for a single, narrow objective. This specificity can become a constraint if business needs evolve.
Any deviation from the original purpose may require restructuring or forming a new entity, leading to additional costs and delays.
4. Risk of Losing Legal Separation
If an SPV is not properly structured or operated such as failing to maintain separate books, ignoring governance formalities, or using it to hide liabilities, courts may “pierce the corporate veil.”
This means the SPV’s legal independence can be disregarded, and liability may extend to the sponsors or parent entities.
Conclusione
Setting up an SPV in India can offer strategic advantages for isolating risk, managing investment flows, or structuring complex transactions, but it requires careful planning and legal precision.
From choosing the right entity type to staying compliant with Indian corporate, tax, and regulatory laws, every step matters.
Whether you’re launching a real estate project, raising capital through an investment platform, or structuring a joint venture, an SPV in India must be purpose-built, transparent, and compliant.
When set up correctly, it can serve as a powerful tool for both domestic and cross-border initiatives, balancing control, flexibility, and protection within a defined legal framework.
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