EMI option plan

Enterprise Management Incentive (“EMI”) options allow employers to provide their employees and directors with the upside of owning shares with none of the risk of loss if the shares go down in value. EMI Options are also a good way of building an overall package to include growth of the business for staff rather than a negotiation purely on salary.

Approved EMI options are very tax attractive for employees. The benefits far outstrip the tax position for unapproved options. This is one of reasons why EMI options are so popular.  Profits made by the employees will be assessed to capital gains tax at 18%. This compares favourably to the rates of tax payable under the income and national insurance tax regime. EMI options are also tax attractive for employers as the legislation permits corporation tax deductions.

We set up EMI option plans to be flexible and allow for future grants of EMI options for the next generation. Our EMI option specialism includes valuation of the shares for EMI option purposes, tax aspects and covers other issues arising from the award of shares to employees or directors.

EMI benefits for employers

EMI schemes result in very generous tax benefits. There are many other benefits of EMI schemes including:-

• Flexibility on who gets share options – Not all employees have to be part of the EMI Scheme as the rules allow the directors plenty of discretion on who participates and on what terms.
• Retaining and motivating staff – many companies use EMI options to retain and motivate employees. This is especially useful if the business is planning a sale and wants to keep employees onside until the exit.
• Flexibility on structure – the decisions on who receives EMI options, how many shares are awarded, the price payable and when they options are exercised are all left to the discretion of the directors.
• EMI tax relief can be preserved following a  re-organisation or demerger if the various rules are satisfied.
• Can be exit only –EMI schemes can be designed to fit most exit objectives.  Many of the EMI schemes we implement are exit only – that means it is only when the company is about to be sold do the employees exercise their EMI options and become shareholders.  The employees then go onto immediately sell their shares along with other shareholders on sale.  Our documentation will provide that no employee can hold up the sale.
• Suitable for many different types and sizes of business – EMI options are suitable for most private companies and some smaller listed companies. Group companies can also grant EMI options to employees in UK subsidiaries.
• Ability to have different classes of shares for the options – There are no rules on the class of shares. Often a new class of share is created just for EMI options so that founders have different rights.
• Company buy back of shares – The Company can buy back the shares issued under EMI option – this is very neat as it provide the opportunity to realise value pre-exit for the employees.

If you are thinking of providing shares to employees, the starting point is always to consider EMI options.

Benefits for employees

• Tax –  no tax is due when the options are granted. On exercise of the options there will be no income tax or employees’ National Insurance Contributions as long as the shares are bought for a cost which is equal or more than the market value at the time the options were granted.
• EMI options motivate employees – the chance to share in the company’s success is attractive.
• There are no rules to force exercise –  unless otherwise contractually agreed, the employees can walk away and let the option lapse if the underlying share price collapses.