Nationalization of Businesses

You may think your business is far too small to
attract a government’s attention in this regard.
But if your activity is deemed strategic
to a host government, think twice
and plan ahead.

NATIONALIZATION IS A CATASTROPHIC BUSINESS EVENT. It happens when a governmental agency takes possession, control and ownership of a private business interest, and may or may not include compensation for the private business. Nationalization is not just the headline-stealing take-over of an oil field by a rogue dictator; it can happen to you. You see it in developing nations as part of regime or political changes, but also quite commonly in industrialized countries. It is also known as reverse privatization.

Eminent Domain/Resumption/Expropriation This happens when private property is taken for public use. The most common form of “nationalization” is eminent domain, used for infrastructure projects like roads or hightension wires. It is also used when changes in zoning laws require new uses for a particular property. This is an area in which you can be affected drastically, even if you are not operating internationally. New zoning ordinances can restrict the size and type of signage you use, impose obligations to make your business wheelchair accessible, or put you out of business, if for example you own a pub and the property is re-zoned to be alcohol free.

Emergency Industry Nationalization In times of war or catastrophe a government can take control of specific industries, such as airport security following the September 11 attacks in the US or the railroads during World War II in a number of countries.

Corporate Control or Bailout In troubled economic times, governments may step in and prevent a company from failing by taking control of the company or making direct investments into it. This is done because the company is viewed as too critical to fail, due to the product produced or to long-term economic effects. Examples include the British nationalization of Rolls Royce in 1971, or the US bailout of the airline industry.

The laws covering nationalization in industrialized countries are local to the jurisdiction. In developing nations, they could be subject to existing laws or created through political change. Nationalization, the possibility of compensation if it happens, and your rights as a business or property owner are potential major risks you must take into consideration in your business planning, wherever you are located.

M.R.M.