Continuation Funds: Legal Structuring And Regulatory Challenges In India
- IJLLR Journal
- 1 hour ago
- 1 min read
Laksh Manuja, B.COM LLB (Hons.), Jindal Global Law School
ABSTRACT
To solve the structural mismatch between fixed fund lifecycles and the extended maturation periods of high potential portfolio assets, continuation funds have become a popular private equity tool. Although market driven governance principles and regulatory monitoring have made these structures institutionalized in developed economies, their adoption in India is still in its infancy. The SEBI (Alternative Investment Funds) Regulations, 20121 were primarily created for fund formation rather than secondary restructuring transactions. This paper explores the legal and operational mechanics of continuation funds within the Indian private equity landscape and argues that their increasing relevance exposes critical gaps in the current regulatory framework.
The paper examines the fiduciary conflicts present in GP-led continuation fund transactions, namely the lack of required independent protections, information asymmetry, valuation opacity, and shortened investor approval deadlines. It also assesses how AIF rules interact with FEMA, FDI policy, taxation, and stamp duty issues, emphasizing transactional inefficiencies and procedural ambiguities. In order to protect investors while permitting GP-led value creation in India, the paper advocates targeted SEBI intervention through improved disclosure standards, independent valuation and fairness mechanisms, LP advisor oversight, and clearer consent procedures. It draws comparative insights from global practice to conclude that continuation funds require calibrated regulatory guidance rather than prohibition.
