EIS Scheme Solicitors

The Enterprise Investment Scheme (EIS) is a UK government initiative run by HMRC designed to help start ups raise funds by rewarding investors with tax relief. Tax relief is allowed upon subscription of shares and then again on sale of the shares.

Under the scheme, investors benefit from tax relief of 30% on their investment.  So, if an investor invests £100,000.00 under EIS – the investor receives a tax refund from HMRC of £30,000.00 for the tax year the money is invested.

Investors into an EIS Scheme will generally also expect the company to be open to ancillary issues such as a shareholder agreement, directors service agreements and and other areas such as employee incentives. We are also specialists in all these areas.

We manage the implementation of EIS and advise both companies looking to set up an EIS scheme to attract investors, handle the corporate work once investors are found and we also advise investors who are looking at an EIS investment opportunity.

EIS Scheme – the basics

EIS investments are a core area of expertise for us. We have made many applications to HMRC on behalf of companies over the years.  We help on the whole process from:

• The company – are the company’s eligibility requirements for EIS met?
• The investor – will he/she/they qualify for EIS tax relief on subscription through to sale?
• EIS fundraising – what is needed?

EIS eligibility requirements for the company

The budget in 2025 has opened up the possibility of a company qualifying for EIS.

It remains the case that not all companies or businesses can qualify for EIS as there are requirements around the company’s size and status. The most important requirements include :-

• Generally speaking the company must have been trading for less than 7 years;
• The company’s gross assets must not be more than £30m prior to the allotment of the EIS shares and more than £35 million immediately after issue;
• The company cannot be a subsidiary of another company (where that other company holds more than 50% of the shares in the company);
• The company must have fewer than the equivalent of 250 full time employees;
• The company cannot raise more than £10m in total over a 1 year period under EIS (£20m for knowledge intensive companies); and
• The lifetime investment limit is £24 million and for knowledge-intensive business £40 million.

Knowledge intensive companies

Knowledge intensive companies for EIS are innovative, R&D-focused businesses creating IP, like deep tech or biotech, that get the enhanced EIS benefits (more investment, higher limits) due to HMRC rules, requiring significant skilled staff or R&D costs to qualify, with examples including firms in tech, healthcare, or life sciences developing new medicines or software.

EIS eligibility requirements for investors

Given the UK Government via HMRC is giving away money, as you would expect, there is legislation around who can benefit under the EIS.  To be eligible for EIS investor must meet the following requirements:

• The investor cannot hold more than 30% of the company’s shares, either on his own or with associates;
• The investor cannot have been an employee or remunerated director of the company prior to subscribing for EIS shares. However, the investor may become a paid director after becoming a shareholder;
• EIS shares require a longish term view – there is a minimum holding period of 3 years to be eligible for EIS. The company also has to remain qualifying;
• The shares cannot have any preferential rights (even if insignificant) to the company’s assets on winding up;
• The maximum EIS investment is capped at £1 million per tax year per investor spread over any number of EIS investments.

Common EIS mistakes which result in a loss of EIS tax relief

There are many traps including but not limited to:

• Creating preferential rights such as guaranteed dividends or the right to have the shares redeemed;
• Creating preferential rights but issuing for example growth shares;
• The investor lends money before the shares are issued;
• The trade fails to qualify for example the subsidiaries are not controlled;
• The cash raised is not deployed in the business;
• Risk to capital requirement is failed; and or but not least
• The investor receives prohibited benefits.

EIS scheme legal work and advice

There are important considerations and hoops to jump through. We advise and assist on the following :-

• HMRC Advance Assurance and consideration of tax implications –  the company can submit an application to UK Government (HMRC) seeking assurance that the company will qualify.  This step is not a legal necessity but it should provide encouragement to investors.
• Due diligence – investors and their advisors will want answers to questions about your finances, business plan, employees, IP and other key matters.
• Terms of the investment offer and preparation of legal documents – once you have approval from HMRC but before you issue any EIS shares you should review your Articles of Association and get an Investment Agreement drafted.  The terms on which the shares will be held and the power of directors often requires review if you are moving from standard articles downloaded upon incorporation for founders to a company now with investors.
• Funds held in escrow – if you have told your EIS investors that subscription is conditional upon a minimum total fund raise you will need to make arrangements for any funds received to be held safely pending the outcome of the fundraising.  We can act as escrow agents and hold these funds for you.
• Compliance including regulatory issues – you need to provide your investors and HMRC with a certificate detailing the investment. There are filings required at Companies House and share certificates to issue in respect of the investment.  A register of shareholders should be maintained and it helps although not essential to keep the share capital table up to-date.

Examples of recent EIS matters we have advised on

• EIS investment for App developer  – the business raised £5 million via EIS.
• EIS investment for a technology company – we worked with a technology company seeking both UK and US investors. We structured a deal to offer the EIS and SEIS investment to the UK investors only.
• EIS for a craft brewery – We worked with a team setting up a craft brewery and seeking SEIS and EIS investment. The founders needed to work through the new requirements that advance assurance requests made to HMRC can no longer be speculative.
• Further EIS investment rounds for a restaurant – raising further investment via a crowd funding platform under an EIS scheme to support their plans for expansion into a second and third site.

Specialist EIS Scheme lawyers

We offer a competitive fee package to deal with your compliance requirements.  Please do get in touch.  We are always happy to help.