Special Purpose Acquisition Companies (SPACs) have emerged as a dynamic alternative to traditional IPOs i.e. Initial Public Offering, especially in volatile capital markets. Often referred to as "blank check companies," they enable private entities to go public through a streamlined merger route. Although popular worldwide the idea of a special purpose acquisition company in India remains under legal and policy development. This article explores the structure, process, evolution, taxation, and regulatory aspects of SPACs to help law aspirants and professionals gain a well-rounded understanding of this rising investment vehicle.
What Is a Special Purpose Acquisition Company?
A special purpose acquisition company (SPAC) is a shell entity formed to raise capital through an Initial Public Offering and later merge with or acquire a private operating company. It has no commercial operations at inception and serves solely to help another business go public. SPACs offer a faster, more flexible alternative to traditional IPOs attracting sponsors and investors alike. Despite their advantages SPACs involve legal, regulatory and governance challenges. Understanding their structure and function is essential for law students and professionals working in corporate or securities law.
Key Features of a SPAC
Here, we explore the defining traits that characterize SPACs and separate them from other public companies.
No operational activity: SPACs do not conduct any commercial business.
Trust fund mechanism: IPO proceeds are placed in a trust until a target is acquired.
Fixed timeline: Typically, a SPAC has 18–24 months to complete a merger.
SPAC shares are originally issued to the public at $10 par value with attached warrants.
Sponsor-driven: Sponsors receive a 20% "promote" stake with limited risk.
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Evolution of Special Purpose Acquisition Company in India
SPACs have taken off globally, but in India, their journey has been cautious. Here's how legal, policy, and financial landscapes are shaping SPAC viability within the Indian context.
Historical Background
The origin of SPACs dates back to the 1980s' "blank check" offerings used for penny stock manipulation. After being regulated through Rule 419 of the U.S. Securities Act, the model evolved into the modern-day special purpose acquisition company model, becoming popular globally by 2020.
Indian Legal Framework
India's Companies Act, 2013 classifies inactive companies without operations as liable to be struck off. This challenges SPAC recognition in domestic law. However, the IFSCA (Issuance and Listing of Securities) Regulations, 2021 introduced a partial legal framework allowing SPAC-like entities to list within GIFT City. Yet, no SPAC has been successfully listed domestically so far.
SPAC Formation and Lifecycle
A SPAC has a structured lifecycle from IPO to merger. This section provides an overview the process of how a special purpose acquisition company operates step-by-step.
Phase 1 – Formation and IPO
The SPAC begins with registration and raising capital from public investors.
Sponsors create the SPAC entity and file with the SEC (Form S-1).
SPAC shares are originally issued through an IPO along with fractional warrants.
Public funds raised are placed into a trust account.
Phase 2 – Target Search and Merger Deal
SPACs identify and negotiate with a potential company to merge with within a fixed timeframe.
SPAC searches for a viable target (up to 19 months).
Once identified, a business combination or merger is negotiated.
SPAC shareholders may vote on the merger or redeem their shares.
Phase 3 – Regulatory Approvals
After the merger is agreed upon, legal disclosures and financial documents are filed for shareholder review.
A proxy or S-4 statement is filed with SEC for transparency.
PIPE (Private Investment in Public Equity) deals may raise additional capital.
Phase 4 – De-SPAC and Listing
If the shareholders approve, the target company goes public by merging with the SPAC.
If approved, the target merges with the SPAC (de-SPAC).
The combined entity lists on the exchange, becoming a public company.
Check out the cases of Public Sector Bank Mergers.
SPAC vs Traditional IPO
Both SPACs and IPOs help companies go public—but the journey, risks, and benefits are very different. Here's a comparative snapshot to help you distinguish the two.
Feature | SPAC | Traditional IPO |
Business Operations | None | Existing Business |
Timeline | 3–6 months | 12–18 months |
Regulation | Simplified (Initially) | Stringent |
Risk | Higher for public investors | Balanced among stakeholders |
Price Discovery | Negotiated | Market-driven |
Legal and Tax Challenges of Special Purpose Acquisition Company in India
SPACs may look glamorous, but in India, tax codes and regulatory grey areas make them complicated. This section uncovers the legal and fiscal roadblocks that SPACs encounter.
Regulatory Barriers
India’s domestic laws treat inactive shell companies with suspicion—making it legally tough for SPACs to operate onshore. Let’s see what’s holding them back.
SPACs are considered "inactive companies" under the Companies Act, 2013.
Indian stock exchanges do not yet permit special purpose acquisition company in India listings directly.
Taxation Complexities
Cross-border mergers come with tax baggage. This part discusses how SPAC structures can trigger capital gains tax, place of effective management rules, and double taxation issues for Indian entities.
Capital Gains: Share swaps during de-SPAC may be taxed if they involve Indian assets.
Permanent Establishment (PE): If SPAC operations are managed from India, PE rules could apply.
Place of Effective Management (PoEM): If key decisions are made in India, global income may be taxed here.
Transfer Pricing: Share valuations and income differentials may trigger disputes.
Employee Taxation: Stock options in SPAC deals may lead to employee-level tax liabilities.
Learn about more Income Tax Rules.
Indian Case Studies Using SPAC Route
Theory aside, how are Indian companies actually using SPACs? Here are real-life examples of how entities like Yatra and Renew Power took the global listing route.
Yatra Online, Inc.
Yatra bypassed India’s legal limits by merging with a U.S. SPAC and getting listed on NASDAQ—setting a trend for Indian startups looking westward.
Used a SPAC named Terrapin 3 Acquisition Corporation.
Merged and listed on NASDAQ in 2016 through de-SPAC.
ReNew Power
ReNew Power used a UK-based holding structure and Cayman Island merger to pull off one of India’s biggest SPAC success stories in the energy sector.
Listed in the U.S. through RMG Acquisition Corp II.
Used PIPE funding and holding company setup in the UK and Singapore.
These cases show how SPACs help bypass India’s domestic listing barriers by leveraging foreign jurisdictions.
Read to learn more about Merger and Acquisition Process
Regulatory Suggestions to Strengthen SPAC Framework in India
To make SPACs truly work in India, laws need to be smarter. Here are some bold but necessary legal reforms that could bring SPACs into the mainstream.
Key Recommendations
From refining IFSCA rules to modernizing SEBI and FEMA frameworks—India needs a tailored approach to SPACs that balances innovation with investor protection.
Enhance IFSCA Regulations: Clear provisions for disclosures, conflict of interest, and investor protection.
Update SEBI ICDR Guidelines: Align SPAC provisions with traditional IPOs.
Amend FEMA (Cross Border Mergers): Streamline international SPAC participation.
Corporate Governance Code: Introduce governance standards for sponsor accountability.
Without robust support laws, the special purpose acquisition company in India will remain limited to outbound routes.
Conclusion: Is SPAC a Real Alternative?
While SPACs offer fast-track public listing routes and capital access, their structural risks and regulatory uncertainty must not be overlooked. The taxation burdens and lack of domestic support currently restrict special purpose acquisition company in India from being a practical investment vehicle. That said, with global momentum and evolving policy frameworks, SPACs can mature into powerful tools if balanced with accountability and compliance. Until then, SPACs remain a hybrid blend of opportunity and caution—a potential asset waiting for legal clarity.
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Special Purpose Acquisition Company: FAQs
Q1: What is a special acquisition company?
A special purpose acquisition company (SPAC) is a shell company formed to raise capital through an IPO for acquiring or merging with an existing private business.
Q2: Is SPAC legal in India?
SPACs are not fully recognized under Indian company law, but the IFSCA (IALS) Regulations, 2021 provide a limited framework for SPACs within GIFT City.
Q3: How is SPAC different from IPO?
Unlike IPOs where existing companies list publicly, SPACs are formed without operations to acquire a target company, offering a faster but riskier route to public markets.
Q4: What is an example of a SPAC?
Yatra Online, Inc. merged with Terrapin 3 Acquisition Corp. and got listed on NASDAQ, making it one of the first Indian companies to use a SPAC route.
