EIS Scheme Solicitors

The Enterprise Investment Scheme (EIS) is a UK government initiative run by HMRC, designed to help eligible companies raise funds by rewarding investors with tax relief. Subject to the relevant conditions being met, investors can benefit from tax relief when they subscribe for qualifying shares and may also benefit from further tax advantages when they sell their shares.

Under the scheme, investors can generally benefit from income tax relief of 30% of their investment.  So, if an investor invests £100,000.00 under EIS, they may be able to claim income tax relief of £30,000 for the tax year in which the investment is made.

Investors into an EIS Scheme will generally also expect the company to be open to ancillary issues such as a shareholders' 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 use EIS to attract investors and investors considering an EIS investment opportunity. We can also handle the corporate work required once investors have been found.

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 with the whole process from:

• The company – are the company meet the eligibility requirements for EIS?
• The investor – will they qualify for EIS tax relief on their investment, from subscription through to sale?
• EIS fundraising – what is needed to structure and implement the fundraising?

EIS eligibility requirements for the company

Changes introduced in 2025 have increased the amount that qualifying companies can raise under the EIS in certain circumstances.

It remains the case that not all companies or businesses can qualify for EIS, as there are requirements around the company’s activities, size, age and structure. 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 afterwards;
• 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 the applicable annual EIS limit, which is currently £10m (or £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, such as deep tech or biotech businesses, that may qualify for enhanced EIS limits due to meeting additional requirements under the EIS rules. These requirements can include significant expenditure on R&D or employing a significant proportion of appropriately skilled staff, with examples including businesses in technology, healthcare and life sciences developing new medicines or software.

EIS eligibility requirements for investors

Given the UK Government, through HMRC, provides significant tax relief to qualifying investors, there is legislation around who can benefit under the EIS.  To be eligible for EIS relief, an investor must meet the following requirements:

• The investor cannot hold more than 30% of the company’s shares, either on their own or together with associates;
• The investor cannot have been an employee or remunerated director of the company prior to subscribing for EIS shares. However, the investor can generally become a paid director after becoming a shareholder;
• EIS shares require a long-term view – there is a minimum holding period of 3 years to retain EIS relief. The company also must continue to meet the qualifying conditions throughout;
• The shares cannot have any preferential rights (even if insignificant) to the company’s assets on winding up;
• The maximum EIS investment is generally 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, because the company's structure or activities do not meet the relevant requirements;
• The cash raised is not deployed in the business;
• Failing to meet the risk-to-capital requirement; and
• 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 HMRC seeking assurance that its proposed investment would be likely to qualify for EIS relief. This step is not a legal necessity, but it can provide greater confidence to prospective 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 considered the EIS requirements and, where appropriate, obtained HMRC advance assurance, 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 the directors and rights of shareholders often require review if you are moving from standard articles downloaded upon incorporation for founders to a company now with external 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 the appropriate compliance certificates and information 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 is helpful, 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 to discuss how we can help with your EIS fundraising, investment documentation and ongoing compliance.