BVI Takes Lead in Establishing Simple, Transparent, and Inexpensive Incorporation for Microbusinesses Around the World
Microbusinesses are a growing, vibrant, and profitable economic segment throughout the world. Such enterprises provide flexibility for individuals to operate on their terms, according to their skills and passions. Microbusinesses generally are defined by modest annual sales and asset values and fewer than five to ten employees, including the owner, but varies by jurisdiction. A subcategory of small business, microenterprises cover the industry spectrum, are inexpensive to start-up and maintain, and can grow beyond their original format or remain the same size for their life-cycle.
Just how important are microbusinesses to global economic growth and employment?
The following statistics tell a compelling story.
In the UK, there were 5.15 million microbusinesses, 1.07 million micro employers, and 8.5 million microbusiness employees (33 percent of total UK private sector employment) at the start of 2015. The sector contributed 19 percent of all Gross Value Added in the UK non-financial business economy in 2014.
In the United States, microbusinesses are reportedly changing the dynamics of income, wealth creation, and quality of life, particularly for women and minorities. They have had a profound impact on job growth, creating over 26 million jobs and representing a staggering 92 percent of all U.S. businesses in 2016.
In a May 2017 speech, the United Nations Secretary-General estimated that micro, small, and medium-sized enterprises represent nearly 90 percent of global economic activities. For emerging economies, microbusinesses present rare opportunities for individual upward mobility, while adding much-needed revenue to tax bases.
The 30 December 2016 online edition of the India Times,“Indian SME trends: The year gone by and 2017,” states that the small and medium enterprise (SME) sector, which includes formalized microbusinesses, is the backbone of the Indian economy. The article posits that SMEs are significant to the economic and social development of India, fostering entrepreneurship and generating the largest employment opportunities at comparatively lower capital cost.
In Africa, SMEs (companies from 1 to 100 employees) contribute roughly 50 percent to the Gross National Product (GDP). They are credited with providing a majority of Africans access to affordable goods and services at reasonable prices, as well income and employment. Although the role of microbusiness in Africa (1-5 employees) is not yet well-established, thousands are reportedly operating informally.
The BVI’s Micro Business Company Act, 2017
International trade volume closely tracks world GDP growth, with nearly 56 percent of global GDP attributed to international trade in 2015 by World Bank. The British Virgin Islands, despite its small size, contributes roughly 2 percent of the world’s GDP through its financial services industry and registered business companies. While most BVI companies facilitate large, complex cross-border transactions; are traded on exchanges from Hong Kong to New York; or are part of major multinational groups, what if there was a more direct way to bring the benefits of international trade to more people? Now there is.
On 16 March 2018, the Minister of the Virgin Islands signed into law the Micro Business Company Act, 2017 (MBC), which is expected to be available to users during Q2 of 2018. The MBC is designed to be much simpler than a standard BVI Business Company. It is transparent, affordable, simple to use, and available on an internet platform that permits direct access to information and to MBC management from a computer or mobile phone.
Internationally well-regarded for its regulatory regime, political stability, and legal system rooted in English common law, the BVI continues to demonstrate its commitment to developing new and innovative financial services products with the introduction of the MBC.
The MBC regime is the first of its kind in the offshore arena and will be attractive to small businesses in emerging and established economies that are ready to begin selling their goods and services to overseas clientele or for any person who needs an efficient small business or small holdings type of entity. Overall, the MBC and its accompanying platform provide a new way to automate both simple and complex multi-party business transactions with reduced costs and increased speed.
How the Micro Business Company Works
Simple. An unincorporated business operated by a single person may not need board meetings, resolutions, or corporate filings, but it is solely dependent on that principal and that individual is fully liable for all the debts and obligations of the business. The promise of the MBC is to give a single principal access to the benefits and protections of incorporation while maintaining the simplicity and control of an unincorporated business.
The BVI MBC is limited to only six shareholders, at least one of which will act as the principal. The principal does not need to pass any resolutions and is fully authorized to conduct all business and sign documents on the MBC’s behalf. The MBC does not issue share certificates or bearer shares, cannot employ more than 10 people, cannot change its name, and is limited to an annual turnover or gross asset value of US $2 million. These restrictions are all designed to make the MBC easy to operate and low risk for third parties that enter into legal relationships with them.
Affordable. The cost of setting up and maintaining an MBC is regulated, with caps on the amounts that can be charged by registered agents.
Transparent. All information regarding the MBC, including its name, “doing business as” name, principals, and participants (i.e., directors and shareholders) are publicly available via the MBC digital platform. Any international entity wishing to do business with an MBC need only search the MBC database to carry out its due diligence.
Digital.The MBC’s internet-accessible platform represents a break from a traditional corporate registry. All filings are completed online, including “Know Your Company” (KYC) documentation and beneficial owner information, if different from the principal. All changes to the MBC are recorded online and are immediately available on the web platform.
Future Ready. The MBC application programming interface (API) envisions support for the blockchain-based trading economy and other fintech developments, such as smart contracts and token sales, where the validity of the MBC, its principals, and beneficial owners can be verified electronically.
The most fundamentally exciting and important part of this product is that for the BVI and corporate law, broadly, the MBC Act represents a first in terms of the relationship between law and technology. The product is both, but the technology is the dominant influence. Until now, the BVI passed laws and then developed technology to assist in their application, such as VIRRGIN. However, the MBC product reverses this order, where the technology comes first and the legislation is developed around it.
The MBC is a welcome tool not only for individuals, startups, and small businesses but also for governments of countries having weaknesses in their business registration and taxation systems by bringing ease of administration and a decreasing tax gap.