Options under the Enterprise Management Incentive (EMI) scheme remain the most popular employee option solution for small and medium enterprises and mid-market companies. At Lupton Fawcett, we regularly advise clients on the implementation of EMI option schemes.
If you would like to discuss EMI options or any other employee share ownership or incentive arrangements, please contact our Leeds, Sheffield or York office by calling 0333 323 5292 or fill in our online contact form and we will get back to you.
Benefits of EMI
EMI share options can be granted by independent trading companies with gross assets not exceeding £30m. The two key factors of EMI options are the tax advantages and the flexibility of the scheme.
One of the purposes of the original EMI legislation (introduced in the Finance Act 2000) was to give trading companies an attractive, flexible and tax efficient share option scheme, while also seeking to put an end to some of the more “creative” alternatives that advisors had been coming up with.
Assuming options are exercisable at no less than the market value of the relevant option shares on the date of grant of the option, the main tax benefits of EMI are:
- No income tax or national insurance payable on grant or exercise of an EMI option
- Entrepreneur’s relief applies to capital gains tax (CGT) payable on any gain on a subsequent sale of option shares, applying an effective CGT rate of just 10%
- On exercise, the company can usually claim a deduction (equal to the market value at the date of exercise less the exercise price paid) against its taxable profits
EMI plans must use ordinary shares, but are not restricted to using existing ordinary shares - EMI options can be granted over new classes of ordinary shares with special or limited rights. It can be particularly tax-efficient (where the existing ordinary shares have more than a nominal value) to grant EMI options over “growth” shares. The fact that the market value of a growth share is less than the value of an ordinary share means that more options can be granted within the EMI individual limit.
EMI options can also be granted with exercise conditions, which can be time or performance based. One of the most common arrangements for EMI options is to grant them on a “Exit Only” basis, so that the option holder can benefit only in the event of a sale of the company.
The scheme particularly suits young, high-growth companies and companies that wish to incentivise key employees, but can be useful in many other situations.
EMI share option schemes are incredibly complex to set up and comply with, making it vital that you seek legal assistance at an early stage of the process to give you the best chance of a rewarding future. Our solicitors have years of experience in this area, setting up and helping run EMI schemes for many types of businesses.
We are able to help you with advice and explanations on legislation, the drafting of legal documents and maintaining and managing the scheme.
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If you would like to discuss EMI options or any other employee share ownership or incentive arrangements, please use the details below to get in touch.
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