BEDC given greater powers to back start-ups
A government agency that supports small and medium-size business start-ups with advice, funding and loan guarantees is to be given greater powers.
In some instances, the exercise of those powers may include taking an equity stake in the start-ups.
The Bermuda Economic Development Corporation Amendment Act 2019 has been tabled in the House of Assembly.
It empowers the BEDC to form subsidiary companies in partnership with entrepreneurs and businesses, and gives the BEDC power to enter into formal corporate arrangements, in association with other persons, for the purpose of aiding those persons in the development of a new business or a new undertaking.
Once the legislation passes, the BEDC will be able to purchase shares in, or incorporate, a local company, and be admitted as a member, or form, a local limited liability company.
If involved in a company, the BEDC will be appointed a director and chief executive.
Where it is involved in a local LLC, the BEDC will be appointed manager.
The BEDC, the legislation says, shall divest itself of all of its shares in a local company, or resign its membership in a local LLC, where the BEDC deems that it has fulfilled its purpose under the Act, or at any other time for any reason it deems fit.
The organisation must receive prior written approval from the minister having responsibility for the BEDC, before it purchases shares, incorporates a company, is admitted as a member of an LLC, or forms an LLC. It must also receive such approval before it divests itself of shares in a company, or resigns from an LLC.
David Burt, the Premier, has ministerial responsibility for the BEDC.
He said: “Increasing numbers of entrepreneurs are seeking more than investment capital or loan guarantees in support of their endeavour.
“To take advantage of the protections afforded to incorporated entities, entrepreneurs often seek the added assistance of the BEDC as more than a lender or guarantor.
“Currently the BEDC has, through section 5, subsection 2 of its Act, the power to borrow money; to lend money; to make grants or guarantee loans; to acquire, hold and dispose of personal and real property. The BEDC can also ‘do anything incidental to any of its powers'.
“Whilst the broad power currently contained in section 5 of the BEDC's Act may already lend itself to create subsidiaries, it was recommended that out of an abundance of caution, the specific power to create subsidiaries be included in the Act.
“The proposed amendments would also allow the BEDC the specific power to engage in the incorporation of entities in support of public/private partnerships. In addition, as part of the incorporated entity, the BEDC would have the opportunity to exercise greater oversight in support of the businesses supported through its existing powers.
“The amendments will only focus on local companies or LLCs. This, with the goal of specifically assisting in the development of new businesses or ventures.”
Mr Burt said that the BEDC would “in some instances” take an equity interest in a start-up that it is assisting.
He said: “If we are forming companies to assist start-ups and facilitate PPPs, then BEDC will essentially be owners in that business and as such, will have the capability to enjoy the full rights of that business including an equity stake if that makes sense. Each company will be different and so each negotiation on the best framework and structure of the company will be customised to that company.”
Depending on the framework and structure negotiated for the company at the time it is formed, Mr Burt said, the BEDC's options for consideration upon divestment or resignation will include transferring its interest to the start-up's co-owner for a nominal fee or selling it for the going market rate.
Mr Burt said money realised upon divestment or resignation will be used to “assist BEDC, through its annual budgeting process, to continue to have adequate funds to provide advice, resources, and support for Bermuda's local small and medium-sized businesses, which will help inspired entrepreneurs to build and run successful businesses which fuel Bermuda's economy”.
He added: “We are determined to open avenues for business success for entrepreneurs. The BEDC will have the ability to provide additional support to new businesses in their start-up phase and this is critical to our objective of promoting small-business growth and economic diversification.”