Investment companies purchase securities that are issued by companies, and they also issue securities which their clients buy. Depending on your jurisdiction, you will have to register with several government agencies. You should work with a lawyer or someone of an equivalent or a higher authority to identify all requirements. Starting an investment firm can be challenging but is certainly doable. You will need to incorporate your new business and register with the appropriate agencies and the state government. Not only do you need an idea for your investors, but you also need a business plan for your company if you want to ascertain its successful launch. Look out the below-mentioned points that you should keep in your mind while starting your own investment company.
Types of Investment Company:
There are many sorts of companies that fall into the heading “investment company’’. You should pinpoint what exactly you would like to create. The most common are the following:
Closed-end investment company: Investments where you issue shares in a one-time public offering. When investors wish to sell, they can sell the shares on a secondary market (e.g. the stock exchange).
Open-end investment company: Different from a closed-end investment company. You can continuously issue new shares in your company. Clients will buy shares from you then sell them back to you.
Picking a good business name and a business structure:
Choose a name for your business that conveys to the clients that you simply can help them with their investment and financial planning needs. Conduct a web search to ascertain if another company is already using the name you are thinking of and check with the secretary of state for your state to see whether a business has registered in that name or not.
Investment companies are often corporations, partnerships, or limited liability companies (LLCs). Each form carries its own risks and benefits, which you should consider carefully.
Corporations are owned by shareholders and run by officers that are appointed by a board of directors. You form a company by filing articles of incorporation with the state. A company shields its owners from personal responsibility for business obligations, such as debts or lawsuits.
Partnerships are owned by the partners, who confirm to jointly run a business. In partnerships, one does not have to file paperwork with the state. However, partners are personally liable for the partnership's obligations. In some jurisdictions, you will create a limited partnership. The general partner is personally responsible for the company's obligations, but its limited partners aren’t.
Limited liability companies are corporation-partnership hybrids, separate, and distinct legal entities. They also shield the members from personal responsibility for business obligations. You will need your jurisdiction's permission to make an LLC.
Writing a Business plan:
Investment companies seem so variable in nature that it is impossible to generalize what your goals should be. Investment companies attempt to maximize the best return possible for their investors. Identify investment companies you would like to model yourself after and try to look online at their business plans and business models.
Your business plan should include:
- An entire marketing plan i.e. company summary that features the services you will offer and your business type.
- Identify the quantity of capital you will have at the beginning and your total start-up expenses.
- Mention which sorts of clients you propose to target- business owners, high net worth individuals, middle- income households, or any other target group.
- Mention the goals and objectives of your business, including short- and long-term goals.
- Write out detailed marketing strategies on how you plan to reach your target market and convince people to become your clients.
- Identify your target consumer group based on age, location, gender, education, income, place, etc.
- Mention what promotional efforts you will undertake to succeed in your target market.
- Create projected cash flows, records, and business ratios. You must also forecast your sales.
Incorporate your Business:
An investment company in India is categorized as a company carrying on financial activity or operating as NBFCs. These are governed by RBI.
- The corporate has to be first set up as a normal private/public company under the Companies Act 2013.
- Then an application for registration of the company as NBFC has to be made with RBI.
- You need 2 crores which are the minimum net owned funds.
- Directors on Board should be financially literate to carry out the Investment business.
- The requirement of a business plan and financial projections also should be done with the assistance of your consultant.
Registration and Exemption:
- All applicants need to download and fill the newest application form for the CIC-ND-SI category from the RBI website.
- Submit the application to the regional office of the DNBS – Department of Non-Banking Supervision.
- The application form has the updated document checklist however there could be additional documents required and it depends on a case-to-case basis.
- As per the last audited balance sheet of the Company, it needs to hold not less than 90% of its net assets in the variety of investments in shares (equity or preference), bonds, debentures, debt, or loans in group companies. The balance of 10% of Net assets that the CIC’s can hold outside the group include land or other sorts of fixed assets that are essential for running the company.
- It cannot trade in its investments in shares, bonds, debentures, debt, or loans in group companies except through block sale with the aim of diluting or disinvestment.
- The investment of the company in the shares of the group companies needs to be a minimum of 60% of the net worth of its assets.
- Companies that have an asset size of less than Rs. 100 crores are exempted from registration as per the Act – the combination asset size of the investment company is calculated by totaling individual sizes of all the CIC’s belonging to a specific group. In case the entire asset size is Rs. 100 crore or more the core investment company must register.
- CIC’s that are worth Rs. 100 crore or more and not accessing public funds are exempted.
- As per the Act, Investment Companies that have an asset size of less than Rs. 100 crores would be required to apply for the certificate of registration within a period of three months from the date of achieving Rs. 100 crores in the balance sheet
Open a trading account in your business name which you will need to buy and sell stocks.
Market or Brand your Company:
Your brand is your business identity. It is the collection of emotions or experiences your clients will attach with your business. Spend time coming up with an identical branding strategy.
- Create a logo and a tagline that can convey your brand.
- Create marketing material to market your own business products or services.
- Create a brochure, website, business cards, advertisements, and other marketing materials you would like to market your business and reach target clients.
- Social media can be a good approach where you can share quality content regarding investments and private finance from your accounts.
- Over time, you will develop a relationship with current and prospective clients.
- Another option is to offer seminars to community groups. You can even offer snacks or extra perks to attendees that they can enjoy while you provide a presentation on investment options.
Follow Laws, Rules, and Regulations:
The government will closely regulate how you offer your investment products and services. You must follow the requirements set by your regulatory authority (RBI). The RBI, through a circular, asked existing entities to reorganize their business structure accordingly and adhere to the mentioned guidelines latest by 2023 which also includes that investments in equity shares in group companies should constitute not less than 60% of its net assets.
If any company violates the rules set by RBI, the government regulator will sanction you. So, you must follow the latest RBI amendments, updates, and guidelines.
If you looking to start your own investment company, we can help you out and take care of all the documentation and processes. Do get in touch with us so that we can help you grow!
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