EMI Scheme

Specialist EMI Scheme Advice

Enterprise Management Incentive (“EMI”) schemes allow employers to provide their employees 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 negotiating an overall package for staff rather than a discussion 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 10%.

If you need specialist, experienced legal advice on setting up an EMI Scheme, valuation of the shares, tax aspects or any other legal issue associated, we are experts in this area. We are a boutique, flexible firm which means our legal fees are competitive compared to other specialists. Please do get in contact to discuss on 020 7438 1060.

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 decision 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.
  • HMRC relaxation on reporting requirements for employers – the plan is employers will only report the grant of an EMI option on the annual return covering any activity relating to share plans.  This will make life easier.

If you are thinking of providing shares to employees the starting point is always an EMI Scheme.

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.

How to set up an EMI Scheme

An EMI Scheme is relatively easy to set up once key scheme design decisions on set up, structure and scheme rules and eligibility have been made.  We  assist clients with these aspects and take care of all of the legal and tax issues for you which include :-

  • Deciding on and drafting the EMI Scheme rules  – setting out the umbrella terms and conditions for the options and the procedure for grant and exercise;
  • Option Agreement –  between the company and the employee setting out the specific award, exercise price, exercise conditions, how and in what situations the options may lapse, good leaver and bad leaver provisions and other important details.
  • Corporate law formalities – Board minutes and a resolution for the issue of shares pursuant to exercise.
  • HMRC – notifying HMRC about the grant of the EMI options. Whilst not essential it is recommended that you agree a valuation with HMRC for shares awarded under EMI option.  When the option holders exercise the options, usually on exit, a valuation provides certainty as to the tax position and cuts down tax risks for employees.
  • Ongoing reporting –  there will be ongoing annual HMRC reporting requirements following set up which we can help you with.

Our experience

We do a lot of work on EMI Schemes. Below are a small sample of case studies and summary of work which you may find helpful :-

Let us take it from here

Call us on 020 7438 1060 or complete the form and one of our team will be in touch.

Catherine Gannon

Catherine is an extremely experienced solicitor, having been qualified since 2000, and deals with all types of corporate and commercial matters and advice and also tax law.

Catherine is well known for turning complex problems into solutions, priding herself on always finding a way. In her spare time she runs Gannons!