Corporate Venturing Scheme (CVS)

Definition

The Corporate Venturing Scheme (CVS) was a program designed by the UK government to stimulate investment in smaller companies by larger, established corporations. The scheme aimed to facilitate the flow of capital into innovative ventures that might otherwise struggle to attract financing. Under CVS, investing companies could obtain a 20% relief on corporation tax against the amount invested in full-risk ordinary shares, provided the shares were held for a minimum of three years. The intent was to reduce the risk and improve the attractiveness of investing in smaller, potentially higher-risk enterprises. However, the CVS was discontinued in 2010.

Examples

Investment in Startups: A large pharmaceutical company invests in a biotech startup developing cutting-edge treatments. By participating in the CVS, the pharmaceutical company receives a 20% tax relief on the amount invested, incentivizing the support of innovative new technologies.
Venture Capital: A software corporation looking to diversify its technology portfolio invests in a small AI startup. As long as the shares are held for three years, the corporation can leverage the benefits of the CVS to obtain a significant tax reduction on their investment.
Corporate Partnerships: An established renewable energy firm invests in a developing clean energy company. This not only supports the clean energy company’s growth but also qualifies the energy firm for corporate tax relief under the CVS, provided all conditions are met.

Frequently Asked Questions (FAQs)

What was the main purpose of the Corporate Venturing Scheme (CVS)?

The main purpose of the CVS was to encourage established companies to invest in smaller enterprises by reducing the financial risk associated with such investments through tax incentives.

How long did companies need to hold shares to qualify for the CVS tax relief?

Companies needed to hold the full-risk ordinary shares for at least three years to qualify for the 20% corporation tax relief.

Why was the Corporate Venturing Scheme (CVS) discontinued?

The CVS was discontinued in 2010, likely due to policy changes and evaluations on the effectiveness and economic impact of this and other similar incentivization programs.

Could any company participate in the CVS?

Not all companies could participate. The investing company had to be established and the recipient of the investment typically needed to qualify under the guidelines similar to those set in the Enterprise Investment Scheme (EIS).

Did the CVS apply to loans and debt investments?

No, the CVS was specifically designed for equity investments in the form of full-risk ordinary shares, not loans or debt instruments.

Enterprise Investment Scheme (EIS): A UK tax relief scheme designed to encourage investment in smaller high-risk companies by offering a range of tax reliefs to individual investors who purchase shares in those companies.
Corporation Tax Relief: A reduction in the amount of corporation tax a company must pay, applicable under various schemes or situations.
Venture Capital: Financial capital provided to early-stage, high-potential, growth startup companies.
Equity Investment: The purchase of shares in a company, representing ownership interest.

Online References

Suggested Books for Further Studies

“Venture Capital and Private Equity: A Casebook” by Josh Lerner, Felda Hardymon, and Ann Leamon.
“Corporate Venturing: Creating New Businesses within the Firm” by Zenas Block and Ian MacMillan.
“Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron” by Bethany McLean and Peter Elkind (provides insights into corporate governance and investment strategies).

Accounting Basics: “Corporate Venturing Scheme (CVS)” Fundamentals Quiz

### What is the primary benefit of the Corporate Venturing Scheme (CVS)? - [x] Corporation tax relief for investing companies - [ ] Immediate liquidity for companies - [ ] Shareholder dividends - [ ] Exemption from capital gains tax > **Explanation:** The primary benefit of the CVS is to provide corporation tax relief (at 20%) for companies investing in smaller companies through full-risk ordinary shares. ### How many years must shares be held to qualify for the CVS tax relief? - [ ] 1 year - [x] 3 years - [ ] 5 years - [ ] 10 years > **Explanation:** To be eligible for the 20% corporation tax relief under the CVS, shares must be held for at least three years. ### Which type of shares qualified for CVS tax incentives? - [ ] Preferred shares - [ ] Convertible bonds - [x] Full-risk ordinary shares - [ ] Debt instruments > **Explanation:** The CVS was designed specifically for investments made into full-risk ordinary shares of qualifying companies. ### When was the Corporate Venturing Scheme (CVS) discontinued? - [ ] 2005 - [ ] 2008 - [x] 2010 - [ ] 2012 > **Explanation:** The Corporate Venturing Scheme (CVS) was discontinued in 2010. ### Which UK tax relief scheme is similar in purpose to the CVS? - [ ] Small Business Rates Relief (SBRR) - [x] Enterprise Investment Scheme (EIS) - [ ] Capital Gains Tax Allowance - [ ] Annual Investment Allowance (AIA) > **Explanation:** The Enterprise Investment Scheme (EIS) is similar in purpose to the CVS, designed to encourage investment in smaller companies through tax incentives. ### Could debt investments qualify for the CVS tax relief? - [ ] Yes, but with restrictions - [ ] Yes, if held for 5 years - [x] No, only equity investments qualify - [ ] Yes, if used for growth activities > **Explanation:** Only equity investments through full-risk ordinary shares qualified for the CVS tax relief, not debt investments. ### What was the tax relief rate provided under the CVS? - [ ] 10% - [x] 20% - [ ] 30% - [ ] 50% > **Explanation:** The CVS offered a 20% corporation tax relief on the amount invested in qualifying shares. ### Can an individual investor claim tax relief under the CVS? - [ ] Yes, any investor can - [ ] Yes, under certain conditions - [x] No, only corporations could - [ ] Yes, if investing in listed companies > **Explanation:** The CVS was designed for established corporations to claim tax relief, not individual investors. ### What was the minimum shareholding period to ensure qualification for tax relief under the CVS? - [x] 3 years - [ ] 2 years - [ ] 5 years - [ ] 1 year > **Explanation:** The minimum shareholding period to qualify for tax relief under the CVS was three years. ### What sector typically benefits from schemes like the CVS? - [x] Smaller, high-risk companies - [ ] Government sectors - [ ] Multinational corporations - [ ] Non-profit organizations > **Explanation:** Smaller, high-risk companies typically benefit from schemes like the CVS as these programs are designed to attract investment into such ventures by reducing associated risks through tax incentives.

Thank you for exploring the intricacies of the Corporate Venturing Scheme (CVS) and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!