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Regulated Company / Regulated Investment Company (RIC)

Meaning of a “Regulated Company”

Regulated companies are the companies, which –
  • are associations of merchants;
  • are governed by the statutory bodies;
  • have obtained license to be such company;
  • are subject to a lower corporate income tax rate.
Objective

Generally, the objective of these companies is to earn dividends, interest, etc and pass it on to its investors, and also pass on therewith the taxes on its revenue to the investors, which the investors has to pay as his individual income, thereby avoiding double taxation.



Regulated company and regulated investment company are same kind of company having similar business concept, but the theories differs from country to country.




U.S. CODE - AMERICA

In accordance with the Section 851 of the United States Code, a company to be a regulated investment company, 
  • must be a domestic company, 
  • which is registered under the Investment Company Act of 1940, as a management company or unit investment trust, or 
  • has in effect an election under such Act to be treated as a business development company, or  
  • which is a common trust fund or similar fund excluded by section 3(c)(3) of such Act from the definition of “investment company” and is not included in the definition of “common trust fund” by section 584 (a).

The said company must pass the following 2 tests, to be a regulated investment company.

1. Income test – section 851(b)(2)

Atleast 90% of the gross income of the company must be derived from—
(i) dividends, interest, payments with respect to securities loans, and gains from the sale / disposition of stock or securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities, or currencies, including but not limited to gains from options, futures or forward contracts etc and

(ii) net income derived from an interest in a qualified publicly traded partnership.

2. Asset test – section 851(b)(2)

At the close of each quarter of the taxable year—

(i) at least 50% of its total assets' value is cash and cash items (including receivables), Government securities and securities of other regulated investment companies, and other securities (calculations are prescribed).

(B) not more than 25% of its total assets' value is invested in—
  1. the securities of any one issuer, (here securities do not include Government securities or the securities of other RICs);
  2. the securities of 2 or more issuers which the taxpayer controls and which are determined, under regulations prescribed by the Secretary, to be engaged in the same or similar trades or businesses or related trades or businesses, (here securities do not include the securities of other RICs) or
  3. the securities of one or more qualified publicly traded partnerships.

SOUTH AFRICAN COMPANIES ACT

In accordance with the Section 117(1)(i) of the Companies Act 71 of 2008, "regulated company" means a company to which Part B, Part C of Chapter 5 (Fundamental Transactions, Takeovers and Offers) and the Takeover Regulations apply, as determined in accordance with section 118(1) and (2).

Above said, Takeover Regulations means the regulations made by the Minister in terms of sections 120 and 223.

Criterias for determining Regulated Company as prescribed under Section 118(1) and (2)

Section 118(1)

A company will be considered as a ‘regulated company’, if that company is a —
a) a public company;
b) a state-owned company, except to the extent that any such company has been exempted in terms of section 9; or
c) a private company, but only if—
i) the percentage of the issued securities of that company that have been transferred, other than by transfer between or among related or inter-related persons, within the period of 24 months immediately before the date of a particular affected transaction or offer exceeds the percentage prescribed in terms of subsection (2); or
ii) the Memorandum of Incorporation of that company expressly provides that the company and its securities are subject to this Part, Part C and the Takeover Regulations, irrespective of whether the company falls within the criteria set out in subparagraph (i).

Section 118(2)

The Minister, after consulting the Panel, may prescribe a minimum percentage, being not less than 10%, of the issued securities of a private company which, if transferred within a 24-month period as contemplated in subsection (1)(c)(i), would bring that company and its securities within the application of this Part, Part C, and the Takeover Regulations in terms of that subsection.

Non-regulated Companies

Simply, a company who is not a regulated company can be called as a non-regulated company. Important, to note here is that, the Memorandum of Incorporation of both will be different considering the provisions prescribed for regulated company.


JAMAICA

In accordance with Section 2 of the Assets (Tax (Specified Bodies) Act, 2003, as amended by the Provisional Collection of Tax (Assets Tax) Order, 2012 –

A regulated company means a company that is regulated by any of the following entities,
(a) Financial Services Commission (FSC)
(b) Bank of Jamaica (BOJ)

An “unregulated company” means a company that is not a regulated company.


INDIA

In India, or under Indian Companies act, there is no such concept of Regulated Company.
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