With the current situation, start-ups and businesses in the UK are bound to face many obstacles today. Inflation and declining investments are the two most prominent factors. But that’s just the tip of the iceberg. There are many legal factors that could potentially affect or hinder further development of a business. Legal requirements in the UK for launching and doing business can be quite complex. And sometimes, no matter the sound reasoning behind certain regulations, it can be stifling, for start-ups especially. What’s more, increasingly stringent regulations are being introduced regularly, tightening the circle of maneuver even further.
Let’s also not forget their effects on the economy and the strengthening of the black market. The gaming industry in the UK with its mandatory GamStop inclusion is a perfect example of this. Due to this, many players are choosing alternatives that they find more suitable for them. In instances such as these, it’s a priority to find instruments that will balance between protecting the vulnerable and satisfying consumers.
National Security and Investment (NSI) Act
One of the newest pieces of legislation that concerns businesses in the UK is the National Security and Investment (NSI) Act. It was enacted in January 2022. It allows the UK government to examine and intervene in acquisitions, investments, and mergers if they deem them threatening to the UK’s national security. The main goal is to thwart hostile investments in key areas of UK business development.
The NSI Act has two crucial components, and they are:
- Informing the government about certain transactions
- The government restricting or blocking transactions
It basically means that the government must be informed regarding certain transactions/investments before they are initiated. Upon the government’s decision, these business ventures can be approved, restricted, or blocked.
The scope of NSI Act
The Act applies to the following sectors:
- Advanced Robotics
- Advanced Materials
- Artificial Intelligence
- Civil Nuclear
- Communications
- Computing Hardware
- Critical Suppliers to the Government
- Cryptographic Authentication
- Data Infrastructure
- Defense
- Energy
- Military and Dual-Use, Quantum Technologies
- Satellite and Space Technologies
- Suppliers to the Emergency Services
- Synthetic Biology
- Transport
As mentioned before, the Act covers only certain transactions, which we’ll try to explain below more closely.
Investors need to inform the government about their acquisitions if:
- The acquisition is of a qualifying entity (a company, a limited liability partnership, other body corporate, a partnership, an unincorporated association, a trust) or a qualifying asset (land, moveable property, ideas or information of industrial/commercial value).
- Entities or assets are located in, from or connected to the UK.
- The control level of an acquisition rises above a certain threshold
- The acquisition date wasn’t prior to 12 November 2020
When it comes to investments, the government will have the final say if shareholding stakes or decision-making rights increase:
- Up to 25% or from less to more than 25%
- Up to 50% or from less to more than 50%
- Starting below 75% to 75% or more
Repercussions for not abiding by the NSI Act
The NSI Act applies to all transactions within the above perimeters, both foreign and within the country. For those who omit to inform the government about their acquisitions beforehand, they can submit them retroactively and wait for a decision. Otherwise, the attempt will be considered invalid. Additionally, the individual or the organization in question might face monetary fines of up to 5% of their global turnover or up to £10 million. Imprisonment sanctions of up to 5 years are also viable.
In conclusion, it’s better to notify the government before the transaction just to avoid all the unnecessary hassle.
