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On 4 January 2022 the National Security and Investment (NSI) Act came into force in the UK. In this article, we look at what this law means and how it affects investors, startups and businesses.
The NSI Act allows the UK Government to investigate and intervene in investments, acquisitions and mergers of private companies that could threaten UK national security. The new law also allows the Government to impose certain obligations on companies and investors who intend to complete such transactions.
The legislation is part of wider activity to better monitor and prevent foreign individuals and organisations making potentially hostile investments in strategic areas of UK business development.
The new law has two major components:
The NSI requirements cover companies in these ‘areas of the economy’:
Companies affected are called ‘qualifying entities’. To check exactly what activities are covered by each of these categories and to find out if your business is a qualifying entity, read the full details at the government website:
gov.uk: NSI Act: Guidance on notifiable acquisitions
These ‘areas of the economy’ are broad so we expect the mandatory notification obligations will affect a large number of companies, especially those in technology sectors and disruptive industries.
The NSI regulations are intentionally designed not to refer to any value thresholds, for example, annual turnover, net worth of assets or size of transaction. This is so that the law covers investments in startups and SMEs, as well as large companies.
If a person or an organisation invests in or acquires shares/assets in a company operating in a sensitive area (see the list above), it’s a ‘notifiable transaction’ if one of these situations occurs:
To check if you need to tell the government about an investment or acquisition, read the guidance on the government’s website.
Based on our experience of more than 2,500 funding rounds completed on SeedLegals, our data shows that at least one of the above scenarios happens in at least 10% of early-stage funding rounds. This means that for some companies, you’ll need to notify the government about even a simple equity investment.
No. The acquirer/investor does not need to be a foreign person or foreign organisation – the law covers any relevant transactions even if they’re carried out by UK citizens, residents or organisations.
It’s the investor/acquirer – the person or organisation buying shares/assets in the transaction – who must notify the government.
If you complete a transaction that’s subject to mandatory notification without government approval, the transaction will be legally void. Also, the investor/acquirer could be fined up to 5% of their global turnover or £10million, whichever is greater, and they may face criminal penalties of up to five years imprisonment.
If the investor/acquirer doesn’t submit a notification before the transaction takes place, they can apply for retrospective validation on the government’s notification portal, but until the government approves the transaction, it’s void.
If you’re an investor or acquirer and your transaction meets the criteria for a mandatory notification, you’ll need to notify the government via the online NSI portal. You’ll need to give details of the:
You can also use the portal to submit a ‘voluntary notification’ – that is, notify the government about a transaction even if it doesn’t appear to meet the criteria for a mandatory notification.
To help you prepare your notification, you can view the forms and guidance at the government website.
⚠️ Important: For transactions where it’s mandatory to notify the government, the investor/acquirer must notify the government before the transaction is completed. Then, if the government calls in a transaction, you must delay it until cleared by the government. To avoid delays to your transaction, send the notification as early as possible.
The government expects to receive around 1,800 notifications a year – we believe this is an under-estimate because the law covers such a broad range of sectors.
Yes. If the government reasonably suspects the transaction might be a risk to national security, they can call in the transaction for assessment.
The government can assess acquisitions for up to six months after they become aware of the transaction, and up to five years after a transaction has taken place.
Yes. If your transaction doesn’t meet the criteria for a mandatory notification, you’re not legally required to tell the government about it. However, the investor/acquirer can submit a voluntary notification via the online portal if they’re involved in a planned or completed transaction not covered by mandatory notification and they want to find out if the government will call it in.
If the government ‘calls in’ a transaction, they aim to complete their assessment within 30 working days. The government can extend this by a further 45 working days in some circumstances. Your transaction must not be completed before the government has given you clearance, otherwise the transaction will be deemed legally void.
When the government has completed their assessment, they’ll either clear the transaction, allowing you to complete it, or impose certain conditions on the acquisition, or unwind or block the acquisition partially or completely.
The government has said they expect 75 to 90 transactions to be called in for assessment every year – this means they don’t expect to call in the overwhelming majority of transactions.
There’s more detail at the government website about what to expect after you’ve submitted your NSI notification form.
Take a look at the details published on the government website:
gov.uk: NSI Act: prepare for new rules about acquisitions
If you have more questions about the National Security and Investment Act and how it might apply to your business, hit the chat button or email us: [email protected]