The EMI scheme is structured as an option based scheme and is specifically aimed at the smaller ‘higher risk’ trading company. EMI options are particularly attractive for small or start-up companies that may opt for EMI options when cash is tight to remain a competitive employer against larger companies for key employees.
The scheme allows employers to grant share options to key employees in a tax efficient way, as a reward for their efforts and/or to retain and incentivise key employees long-term. They provide employers and employees with significant tax benefits and are much more flexible than other tax favoured share arrangements.
A number of EMI schemes are ‘exit-based’ with the share options being exercisable on a sale or flotation of the company. Most owner managed companies prefer this type of arrangement, since the option holders do not become shareholders until shortly before the sale of the company. This also ‘rewards’ the employee option holders with a share of the sale proceeds (taxed at beneficial capital gains tax rates).
Having share options can sometimes be more feasible and attractive to employees. They might even be more incentivising if the EMI options are such that provide exercisability upon target achievement. Companies may prefer also not to provide outright shares to employees in order to avoid complications in the event of the employees leaving the company.
Companies offering EMI share options must be involved in qualifying trades. Excluded trades include:
- Legal services, and
- Property development.
Do contact Lawrence Grant to learn more about eligibility, qualifying conditions and benefits of EMI schemes.