Microbusiness Companies Act 2017: Good things come in small packages

Everybody knows what an offshore company is supposed to be – a corporate vehicle used by global businesses and wealthy individuals, which allows them a great deal of flexibility to do clever things with their assets, and is protected by confidentiality. But if that is what you think, then as Bachman–Turner Overdrive sang: You ain’t seen nothing yet.

This is because in June the British Virgin Islands enacted the Micro Business Corporations Act, legislation which will allow the BVI to offer corporate solutions to an unexpected segment of the business market: microbusinesses.

As set out in the law, BVI microbusiness corporations (or MBCs) are pretty much the polar opposite of the traditional image of an offshore company. True, they are exempt from BVI taxes and by design will carry on their microbusiness outside of the BVI (paying taxes where they operate), but that is about the limit of any similarity. MBCs are deliberately focused upon delivering the benefits of limited liability to micro businesses anywhere in the world, but especially in emerging economies. MBCs are affordable. They are simple. And they are completely transparent.

The value of microbusiness to both developing and developed economies is well documented. But whilst developments in microfinance, policy and regulation of micro enterprises are evolving, the same cannot be said of the corporate infrastructure. Accordingly, microbusinesses normally start as sole traders working in the informal economy, and at some point in their growth cycle needed to make the quantum leap to full incorporation within the regulated formal economy. The MBC is designed to bridge that gap.

The MBC, as established in the BVI’s new law, is a very simple and limited type of company. It is designed for limited ownership businesses with a turnover and asset value below US$2 million and businesses with 10 or fewer employees. The number of shareholders is also limited, and restricted to individuals. Those persons will be publicly identified as the owners, and the shares are non-transferrable and may not be encumbered.

The other key feature of the MBC is that it is heavily technology driven. The law envisions that the entire incorporation process, including KYC checks, can be done from a mobile phone. It is not, after all, terribly realistic to ask a farmer in rural Kenya to travel to Nairobi to have a copy of his passport certified by a notary, and then courier it to the BVI, and wait for his certificate of incorporation to get couriered back. Particularly when that farmer is already receiving crop and weather data and making and receiving mobile money business payments effortlessly on a smartphone. The whole process of couriering original documents back and forth to remote corners of the world is anachronistic – and will be obviated by the MBC platform.

Most microbusinesses fail within the first year – that is not dissimilar from other business startup models; that is the nature of capitalist enterprises. Accordingly, many MBCs are likely to have a short life. However, for those businesses which do succeed, the undertaking and assets of the business are already held within a corporate structure which can then be easily transformed into a fully-fledged company when the business is ready to take that next step – be it to bring in outside investors, or in relation to a merger or acquisition, or whatever it may be. And for the businesses which fail, having the protection of limited liability allows the business owner some protection for his or her personal assets and greater opportunity to marshal their ideas, learn from their mistakes and try again.

One of the underrated contributions of the offshore world is acting as conduits for capital inflows in the developing world for large infrastructure projects. Hopefully MBCs will provide a complementary service to the business infrastructure in those countries to help entrepreneurs take that first crucial step on the business ladder.

The technology platforms which will make the MBC Act practical are expected to come online later in 2018. It will be interesting to see how the market responds to the BVI’s latest innovation, and whether delivery and distribution matches the promise of the product.