As explained in Part 3, „key personnel‟ includes each individual whose experience and expertise are to be taken into account by CFEL when assessing a proposal. In addition to investment principals, this may include staff with responsibility for reporting, accounting and compliance. For each of these individuals, the relevant information will include:
their name, full address, contact details, summary curriculum vitae;
details of authorisation(s) held under FSMA, including a copy of the current Statement of Permitted Business;
details of existing commitments on their time ( including any other venture funds under management) that will impact on their ability to dedicate their time to an ECF;
details of their proposed role, responsibilities and terms of employment within the ECF, including how much of their time will be devoted to management of the ECF;
details of their relevant skills, expertise and previous experience;
details of other venture funds or other equity investment activities in which they are currently engaged, or are likely to be engaged during the lifetime of the ECF;
details of any directorships held currently or within the past seven years;
whether they are an undischarged bankrupt, have ever been declared bankrupt or are currently the subject of bankruptcy proceedings; are or have ever been a director of an insolvent company; or have an unspent criminal conviction (other than for minor traffic offences). If the answer to any of these questions is „yes‟, this will not exclude them from the application process. However, full details should be provided: applications will be dismissed if the Government‟s due diligence reveals that information has been withheld;
details of any cases of non-compliance by any of the „key personnel‟ identified by regulatory authorities or their agents during the course of an audit or other review of compliance procedures; and
written/signed consent for background checks, including checks of bankruptcy, financial or criminal records, to be undertaken.
Management teams will be asked to provide sufficient details to verify any investment track record of individuals named in their proposal and to provide details of at least 3 referees.
CfEL will also be seeking to determine whether the team as a whole will function effectively.
Guidance for Prospective ECF Managers
ANNEX A – HM REVENUE & CUSTOMS NOTE ON THE APPLICATION OF PART 7 ITEPA 2003 TO ECFs
Depending on the exact nature of an ECF‟s commercial structure, it is possible that one or other person may acquire employment-related securities. Such securities may be a person's interest in a limited partnership or the shares etc. of the target companies into which that partnership invests. It is therefore particularly important to consider the position where an investor in an ECF becomes a director or employee of one or more targets, or receives his opportunity to become a limited partner through his employment in, say, a finance house. In such cases the Memorandum of Understanding between HM Revenue & Customs and the British Venture Capital Association may provide helpful guidance.
The rules in Part 7 of the Income Tax (Earnings and Pensions) Act 2003 identify value being transferred to the holders of employment-related securities by way of remuneration and charge that value to Income Tax and NICs. Generally speaking this is where the employment-related securities are either acquired for less than their full, unrestricted, market value or where certain events occur after acquisition that achieve a transfer of value to the holder of the securities.
One of the factors to be considered in determining whether value is transferred is the rate of interest chargeable on loans. If the rate is less than a commercial rate then value is likely to be transferred at some point in the arrangements. In relation to ECFs, the prioritised return earned by the Government in relation to its loans to the ECF will be regarded as commercial.