We designed and implemented an EMI scheme for a high-tech, app based company. The company wanted to retain its employees to build up the company for sale. The company qualified for the EMI scheme, thus providing considerable tax advantages for the employees. Additionally, when employees exercise their EMI options, the company will gain a substantial corporation tax deduction, equal to the employees’ tax savings.
We reviewed the company’s proposed share options to ensure they qualified for EMI tax relief. At the time, the conditions an employee and the company must satisfy to qualify for an EMI scheme were:
We prepared a preliminary “back of the envelope” company valuation so the employer and employees could consider:
Once we had the go-ahead, with the company we:
We drafted the EMI scheme to permit the employer to:
We next revised the company’s articles and shareholders agreement to clarify how the majority and minority shareholder would behave towards each other.
To ensure employees could not delay or prevent any future company sale, we included drag-along rights. Under a drag-along provision, when one or more shareholders who together hold a certain percentage of shares, sell their shares to a third party, the remaining minority shareholders must also sell their shares on the same terms to the third party.
We protected the minority shareholders with tag-along provisions. These provide that a shareholder holding a certain percentage of shares cannot sell their shares to a third party unless it procures that the third party buyer also offers to purchase all other shares of the other shareholders at the same price.
The company did not want an employee to leave the company, and take shares with them. So we included good and bad leaver provisions in the articles. These provisions mean that when an employee leaves a company, there is an automatic transfer of the employees’ shares.
Employees will be treated as: