ABSTRACT
After serving as a source of alternative capital, private equity has now become one of the greatest pillars of the financial structure worldwide, propelling entrepreneurship, innovation, and economic development. The comparative evaluation of private equity laws was undertaken in India as juxtaposed with the U.S., U.K., and Singapore. It shall try to evaluate the profile of regulatory regime development in India through SEBI (Alternative Investment Funds) Regulations, 2012, and other statutory regimes like the Companies Act, 2013, Foreign Exchange Management Act, 1999, considering the recent developments in this field across the country. While overlaps of jurisdiction and compliance complexity continue, much has been achieved.
It has drawn best practices from the mature regulatory regimes of the US, U.K., and Singapore in terms of shaping the transparency, investor protection, and operational flexibility aspects. For example, under the Variable Capital Company (VCC) structure, Singapore continues to develop a framework that supports fund localization. The United States and United Kingdom have both had an emphasis on extensive disclosure and conflict-of-interest mitigations. The paper compares them with the Indian models, identifies gaps, and recommends reforms for things such as easing foreign investment limits, changes in taxation, quicker approvals by funds, and better harmonization of regulations.
The research brings findings that can contribute to the enhancement of the investor-friendly environment in India while enhancing its competitive edge globally in the private equity space and stimulating economic development.
Keywords: Private equity, SEBI regulations, investor protection, regulatory frameworks, compliance, foreign investment, economic growth, SEC U.S., FCA U.K., MAS Singapore.
INTRODUCTION
Private equity (PE) has gradually become one of the most important players in the global financial structure, becoming a very fluid substitute for banks, public markets, and other traditional financing mechanisms. PE is essentially investments made in private or public companies by PE firms, usually long-term capital, in exchange for managerial control and significant equity. Recently, PE has proven to be a driving factor for entrepreneurship, innovation, and economic growth.
Being one of the fastest-growing economies with a vibrant start-up ecosystem, a growing middle-class, with progressive reforms aimed at liberalizing its financial markets, India has seen a massive tide of PE transactions in the last two decades. While sectors like technology, healthcare, infrastructure, and fintech has largely benefitted from this outflow, there are some concerns about PE over disclosure of norms, ease of doing business, transparency and investor protection.
Along with the PE growth trend, the Indian legal framework governing PE has also had significant evolution. The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, provide a systematic framework regarding Private Equity funds establishment and registration and operation thereof. In addition, these are also supplemented with regulatory provisions of the Foreign Exchange Management Act, 1999, the Companies Act, 2013, as well as various circulars issued by SEBI and RBI governing PE. Regardless of all these rules and regulations, overlapping jurisdiction, complex compliance, and regulatory ambiguity still pose a challenge.
This paper draws a comparative analysis of legal frameworks pertaining to PE in the United States, the United Kingdom, and Singapore, as they widely known for their mature and polished regulatory systems. The US has implemented comprehensive disclosure requirements and conflict of interest rules that safeguard investors through the Securities and Exchange Commission (SEC). The Alternative Investment Fund Managers Directive (AIFMD) of the UK gives importance to the fund transparency, operational integrity, and risk management. The Monetary Authority of Singapore (MAS) provides a hybrid model by balancing regulatory oversight and investment flexibility.
This comparison is of vital importance as India seeks to make itself a global investment destination. The evaluation of the regulation of these jurisdictions focuses on fund formation, investor protection, compliance, and exit strategies. This paper aims to highlight the strengths and shortcomings of India’s financial regulations and also to find practical reforms that could be used in the Indian context.
This paper explores ways for India to build a more investor-friendly and globally competitive set of rules for private equity. The aim is to support economic growth and protect everyone involved.
RESEARCH METHODOLOGY
This paper adopts a comparative research methodology aimed at the analysis of statutory provisions, regulatory frameworks on private equity in India, along with the United States, the United Kingdom, and Singapore. Primary sources include legislation and guidelines like SEBI, SEC, FCA, and MAS, while the secondary would consist of legal literature and industry reports. The research focuses on identifying gaps in regulations and proposing reforms for India.
LITERATURE REVIEW
Unquestionably, private equity regulation in India has seen many twists and turns through numerous happenings of bygone decades. According to Chinchwadkar and Shekhar, this constitutes a journey from the SEBI (Venture Capital Funds) Regulation, 1996, to SEBI (Alternative Investment Funds) Regulation, 2012. The underlying objective of the shift was to take unregulated funds into a formal regulatory framework towards making them more transparent and safer for investor interests. The authors cite examples involving emerging markets such as India, indicating how regulators react than proactively relating to healthy regulation for industry growth such as that of private equity.
The SEBI (Alternative Investment Funds) Regulations, 2012, classify all AIFs into three categories: Category I-AIFs and Category II-AIFs in the two segments – venture funds and infrastructure funds, while it is said that for Category II-AIFs they are called private equity funds and debt funds. These Regulations outline the procedure for registration, investment limits, and disclosure requirements for all private equity funds to make their operations in India standardized.
However despite these regulatory improvements there still exists significant challenges. Sharma mentions that issues have arisen vis-a-vis the Companies Act, 2013, with respect to capital structuring and profit-sharing. These very stringent provisions intended for improving corporate governance have, in fact, posed a challenge to private equity and venture capital investors. The author believes that substantial legal knowledge is required to manoeuvre through such regulations because of the dynamic business environment in India.
The United States has a complex and established regulatory environment when it comes to private equity. One of the grand changes ushered in 2010 with the Dodd-Frank Wall Street Reform and Consumer Protection Act made it necessary for private equity advisors to register with the Securities and Exchange Commission (SEC) while enhancing disclosure provisions. These measures were meant to increase the amount of transparency and security for investors, especially as a reaction to the 2008 financial crisis. Critics called such additional regulatory burdens stifling innovations and incurring compliance costs on smaller firms.
This emphasis on transparency of fees and disclosing conflicts of interest, from the SEC point of view, brought in greater scrutiny of private equity firms’ modus operandi. Such regulations may give higher trust to investors, but they have also raised debates regarding the balance between supervision and operational freedom. The U.S. experience highlights the importance of ensuring that both the interests for investor protection and those of the growth of the industry are well drafted and balanced.
In the UK, private equity activities are handled by the Financial Conduct Authority (FCA), whose major concern is that of protecting the investors and the integrity of their market operations. The FCA is concerned with the ‘double dipping’ that occurs by supposed fee-based financial advisors. The last review shed light on the increased need to have better surveillance and documentation of valuation processes, especially with an increase in exposure to retail investors on private assets.
The UK’s regulatory schemes will bring in the Alternative Investment Fund Managers Directive (AIFMD), which sets standards for fund management, risk management, and transparency. While the European Union had set out on this effort to unify regulations in every Member State, the actual discussion in the UK has been whether the AIFMD’s implementation will be competitively effective and whether, in a post-Brexit environment, the need for regulatory considerations further becomes necessary.
In Asia’s private equity scene, Singapore is a fast-growing and self-adjusting regulatory measure. The Variable Capital Company (VCC) was introduced in Singapore in 2020. It was a key step in changing how the country manages investment funds. It gives private equity funds an operationally flexible, tax-efficient, and low administrative burden vehicle.
Lin discusses in her article titled “Unleash the Value of Private Equity in Singapore” the growth of the private equity sector within the Singaporean economy and its challenges in dealing with legal structures and fiscal policies. The author opines that although Singapore has been putting great effort into this area, some follow-up reforms, such as more liberal tax policies and hence changes to the limited partnership structure, would put Singapore in a more solid position as an onshore hub for private equity funds.
Also, its regulatory provisions include incentives for fund managers to domicile funds locally. MAS has implemented numerous incentive schemes for fund managers, including the VCC grant to defray costs incurred by them in setting up VCCs, and this has greatly aided in the speedy embracing of this VCC structure, with a huge number of private equity funds incorporating or re-domiciling their presence in Singapore.
Comparative studies demonstrate that, though India has made admirable strides toward creating a regulatory framework in private equity, in flexibility and in investor confidence it lags behind the U.S., UK, and Singapore. Confusion caused by regulatory overlaps among the Companies Act, FEMA, and SEBI guidelines often frightens away investors and obstructs the flow of fund operations.
On the contrary, the U.S. and UK maintain an age-old infrastructure under which a host of legalities, however demanding, lend some clarity and predictability to the movement of investment funds. Singapore presents itself in a favourable position within the global private equity arena, demonstrating a fluid regulatory framework characterized by reforms and stakeholder consultation.
Emerging themes like retail investors’ growing interest in private equity create new problems and opportunities. Financial Times pointed out that while broadening retail access might dimly legitimize investment opportunities, it may also raise further concerns regarding liquidity, transparency, and protection for investors. In between these interests, a balance is needed to ensure investment spaces that are inclusive yet secure.
METHOD
India’s Regulatory Framework for Private Equity
India’s private equity ecosystem is managed under a multidimensional regulatory framework established by the Securities and Exchange Board of India (SEBI). The SEBI AIF Regulation of 2012 categorizes funds into three classes; Category III consists of private equity and venture capital funds. Such disclosure regulation, fund management norms, and investor eligibility criteria are so stringent to ensure the maintenance of market integrity.
Foreign Direct Investment (FDI) policies matter greatly in determining the functioning of PEs. DPIIT frequently updates the caps sector-wise, forbidding foreign investments in sensitive sectors like defence and telecommunications etc. The most recent revisions in FDI policy in 2024 eased restrictions on foreign investment in insurance by allowing 74% foreign ownership through an automatic route. Taxation further influences structures adopted for PE—the Income Tax Act imposes capital gains taxes on exits, while withholding taxes apply on cross-border transactions. Apart from this, the CCI goes through a scrutiny of large-scale mergers and acquisitions to prevent any anti-competitive behaviour, requiring that any mergers that exceed a certain asset or turnover threshold seek the pre-approval.
Such recent trends demonstrate a growing inclination towards sustainability- SEBI has made it mandatory for AIFs with more than ₹500 crore in AUM to report on the Environmental, Social and Governance parameters. That notwithstanding, challenges of delayed approval, and duplicity of compliance under both state and federal legislation persist.
United States: SEC’s Evolving Oversight
Transforming the private equity landscape in Washington, the Final Rules adopted by the Securities and Exchange Commission (SEC) in August 2023, will bring in transformational regulatory changes in the private equity sector of the United States. The Final Rules, issued under the Investment Advisers Act of 1940, now consist of six new obligations on private fund advisors, which include, among others, quarterly performance reporting, audited financial statements, and enhanced conflict-of-interest disclosures. Importantly, it rejected previous recommendations linked to certain prohibitive fee structures, preferring transparency reforms.
In the sense of the Final Rules, one of the most revolutionary aspects entails the requirement whereby advisors will be required to obtain annual opinions of fairness for secondary transactions of illiquid assets. Such a requirement addresses one of the long-standing criticisms that regulatory agencies have regarding the lack of transparency in valuation. With an increase in the examination authority, even the SEC is obtaining increased scrutiny on preferential liquidity terms provided to institutional investors during the course of its increasing examination authority. All these should fall within the broader mandate of the agency that protects, while at the same time promoting the efficiency of the market, accredited investors.
They criticize the law for laying too heavy a compliance burden on smaller the kind that usually gets crushed with a harm degree in consolidation of market power into a smaller number of very large institutional players. Nevertheless, institutionalization of private markets is a deliberate transformation spelled out by the rules, just as with public market protections.
United Kingdom: Proportionality and Post-Brexit Reforms
The United Kingdom’s Financial Conduct Authority (FCA) proposed in April 2025 provided a significant shift for the regulation of alternative investment funds (AIFs). Among the key reforms is the increase of the bar for “full scope” regulation from 100 million to 5 billion pounds under asset under management (AUM). Mid-sized private equity and hedge funds are to be exempted from forming a depository and experiencing the burdensome obligations toward reporting. This deregulatory initiative aims to reclaim the competition with EU financial hubs that have set up shop in the post-Brexit world.
The FCA is, therefore, looking at the proportional regime and setting its funds of distinction between systemic and non-systemic. The strict requirements thus apply only to certain fund entities that manifest a material threat to financial stability. For instance, these below £5 billion funds will have ceased being mandated to hold investor assets in separate custody accounts, thus eliminating significant portions of their operational costs.
Nevertheless, on the contrary, the framework provides for strong investor protection, including mandatory protocols for the suspension of redemptions in times of stress.
The reform enjoys synergy with the broader agenda for the UK to lure family offices and sovereign wealth funds through tax promotion, which includes the application as from 2024 of Business Asset Disposal Relief to carried interest. Praised for creating opportunities for innovation, many are quick to warn, however, that less oversight can correlate with increasingly poor counterparty risk in respect of leveraged buyouts.
Singapore: Transparency Over Prescription
MAS’s policies have kept the skin off by design where the private equity industry is concerned. In contrast to the U.S.’s more rules-based approach, MAS emphasizes disclosure and market discipline toward venture capital (VC) funds. Under the Securities and Futures Act, PE managers acting solely for accredited investors do not require licensing from the SFA if they do not manage funds with more than 30 qualified persons or corporate entities.
The new MAS guidelines that took effect in 2023 provided for a simplified authorization for venture capital (VC) managers, whose approval time was reduced from six months to eight weeks. It understands that VCs have a role in the growth of tech startups and to some extent are less systemic in nature. But, the MAS has to keep the bigger buyout funds in line with the Takeover Code, wherein public offers are required once the limit of 30% ownership is passed over into listed entities.
The tax system of Singapore adds to the charms of the place; it avails 10 years of tax exemptions provided certain substantial activity requirements are met under the VCC sweep. Notwithstanding the global setbacks, Singapore received US$7.1 billion in PE investments in 2022, or 55% of the total PE investment in Southeast Asia.
Comparative Discussion: Similarities & Dissimilarities
Regulatory Philosophy
India & U.S.- Rule-based systems stressed on investor protection via prescriptive mandates (e.g. categorization of AIFs by SEBI, quarterly disclosures prescribed by SEC).
- UK & Singapore- Principles-based regimes stressing on proportionality (UK’s tiered AUM thresholds) and market-driven discipline (Singapore’s VC exemptions).
Foreigner Investment Controls
- India has sectoral FDI caps, quite different from the U.S. CFIUS reviews or Singapore’s more free capital account.
- The UK post-Brexit, has loosened regulations on foreign investment with the exception of crucial national security concerns.
Tax Treatment
- India taxes it as capital gains (20 percent with indexation), whereas the U.S. taxes it as ordinary income (37 percent federal rate).
- Carried interest is favored through lower rates in Singapore and the UK (10 percent and 28 percent, respectively), thus encouraging funds to set up there.
Enforcement Mechanisms
SEC and SEBI punish with fines and revocation of licenses while MAS and FCA are inclined to adopt corrective measures backed by supervisory dialogues.
Suggestions To Reinforce India’s Private Equity Regulations
1. Facilitate Fundraising and Share Issuance
Regulate what private equity investors can do when it comes to new shares issued by the company, hence delaying or complicating investments. The current situation favours private equity investors being able to buy shares without asking for consent from existing shareholder holders. Such applications should be waived especially for the startups or growing companies to make investment fast and flexible.
2. Relax Limits on Foreign Investment
Like many other areas in India, foreign investment limits exist in sectors like insurance and defence. To attract greater global private equity money inflow, India should liberalize foreign ownership in most sectors except a few sensitive ones and review only those in terms of security risks. This has been the normal practice in many successful economies such as the US and Singapore.
3. Lower Taxes on Fund Managers’ Earnings
The rules on taxation of profits accruing from private equity fund managers (called carried interest) are complex and highly possible. India needs to bring these down or have differential tax rates on such profits as the UK and Singapore in an attempt to attract more fund managers to set up and invest in India.
4. Currying Speed on Dispute Resolution
The time taken in the Indian legal process in such cases makes the exit very long, as well as the returns. Establishment of special courts or fast-track procedures for private equity-related cases would help speed up such issues and, by that, will lead to improved investor confidence.
5. Differentiate Regulation by Fund Size
Currently, all private equity funds in India are subjected to similar laws, which can be very clumsy for the small-sized funds. India should establish simpler laws applicable for smaller funds, restricting serious loss on compliance costs for the lot with even larger funds.
6. Bring all Domestic Investors to Co-Investment
Some recent legislation rather restricts the ability of Indian banks and insurance companies to co-invest alongside private equity funds. India should design specific exceptions for all such important sectors as infrastructure and green energy, which would enable domestic co-investors to facilitate investments made through private equity funds.
7. Accelerate Approval of Venture Capital Funds
Getting a capital city started under speed approvals takes quite a long time, often many months before one gets approval to set up a venture capital fund in India. It would be of great help if this could be reduced to a few weeks, as has been done in Singapore, to get the start-up much faster into funding.
8. Flexible Share Structures
Many of the startups and private companies now have different types of shares to offer to potential investors and reward their founders. India needs to provide more flexible share classes like dual-class shares so that startups can raise money and grow more easily.
9. Better Harmonization Among the Regulators
Private equity is differentially regulated by several government agencies, which leads to overlapping or contradictory rules and regulations. The establishment of a dedicated council having a composite view of all the concerned agencies will improve superior coordination of policies and thus clear-cut regulations with ease of follow.
Conclusion
The comparative regulation of private equity in India, the USA, the UK, and Singapore displays convergence with the objectives while revealing divergence in actual regulatory implementation. The country has made great strides in the formulation of a regulatory ecosystem for private equity-most notably, the SEBI AIF regulations. Despite this, India still faces numerous challenges: regulatory complexity, slow approvals, expensive tax treatments, and poor fund structuring options make it less competitive internationally.
In contrast, the U.S. and the UK have frameworks tilted more toward the investor, thus requiring heavy disclosure, coupled with sophisticated enforcement mechanisms. As opposed to seeing the risk, Singapore would appear to have a facilitative view but is also very careful with regulatory innovations such as the Variable Capital Company (VCC). Therefore, all these jurisdictions showed that it is possible to give regulatory clarity, structural flexibility, and proportionality.
India will also have to harmonize its overlapping regulatory frameworks and simplify its dispute resolution mechanism so that it can emerge as a global private equity hub, where taxes and legal innovations are provided. Merging with best practices worldwide will make the treatment of Indian regulatory policy able to address transparency, foreign investment, and development of a more robust and investor-friendly private equity environment. In the end, it will be the way regulations align with market realities that will determine India’s success as a destination for long-term capital toward economic growth.
Sreehari S
Institute of Law, Nirma University, Ahmedabad
20/04/2025