Case Study

EMI scheme for high-tech company

Gannons designed and implemented an Enterprise Management Incentives (EMI) scheme for a high-tech, app-based company

Our client wanted to retain their 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.

EMI scheme: first steps

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 respectively that:

EMI Qualifying conditions

The company had to have fewer than 250 employees, and its gross current assets could not exceed £30 million.

Qualifying conditions for the employees

Each employee needed to work at least 25 hours a week for the company, or if less, for at least 75% of their working time. Additionally, the employee individual limit for EMI options is currently £250,000.


We then prepared a preliminary “back of the envelope” company valuation. This allowed our client and their employees to consider what the options were actually worth, and thereby whether they wanted to implement the EMI scheme.

Next steps

Once we were satisfied that the company met all the conditions for EMI, and that they had given us the go-ahead for implementing the scheme, we took the next steps towards doing so. We then prepared a full and accurate valuation of the company, which we agreed with HMRC. Afterwards, we established the tax market value for EMI option grant purposes.

Drafting the EMI scheme

We drafted the EMI scheme. Our drafting permitted our client to determine when the options could be exercised, whilst retaining some flexibility to reward the employees ahead of an exit. Chiefly the scheme would also encourage employees to hit performance targets.

We next revised the company’s articles of association and shareholders’ agreement to clarify how the majority and minority shareholders would behave towards each other.

Drag-along provisions

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.

Tag along provisions

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 the third-party buyer also offers to purchase all other shares of the other shareholders at the same price.

Good and bad leaver provisions

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.

Good leavers:

Employees will be treated as good leavers typically on death, disability, and sometimes redundancy. This entitles them to receive “fair value” for their shares.

Bad leavers:

Employees will be treated as bad leavers if they are dismissed for other reasons or because they resign. This entitles them to receive par value, or the price they paid on subscription if it is higher.

Catherine Ramsay

Manages to explain difficult concepts in easy to understand language. In tune with her clients.

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