Recruit, retain, reward – The benefits of EMI share schemes

Nov 8, 2023

Holding shares in a successful company? Yes, please!

The possibility of holding shares in the company you work for has proven to be a great motivator. Your employees will be aware that if the company performs well, they will see the benefits too. Shares usually come with rights relating to voting, dividends and distributions – therefore, through implementing a share scheme, you are effectively giving your employees those rights in relation to your company.

This can be very attractive. For example, when you eventually sell your business, your employees will be able to realise the value of the shares that they hold. Share schemes are therefore a great way for you to recruit the best talent, retain and motivate key members of your team, and reward staff for their hard work.

One type of share scheme is an Enterprise Management Incentive (EMI) scheme.

What is an EMI scheme?

Putting in place an EMI scheme will give selected employees the option to acquire shares in your company.

Each employee who is a part of the scheme will receive an agreement with the specific terms that apply to their option. This allows you to cater your scheme to consider factors such as job role, seniority, and the value that different employees bring to your business.

Different conditions can apply to each employee who is part of the scheme, and these conditions will determine when each employee is able to exercise their option. Exercise can be conditional on factors such as completing a particular service period with the company, achieving performance targets, or on a sale of the company.

You can also provide different employees with the option to acquire different numbers of shares in your company – allowing you to create a bespoke plan for each employee.

Are there any conditions to meet?

If the following conditions are met, you can set up an EMI scheme:

  • Your company must be independent of other companies – This means that your company must not be a 51% subsidiary of, or otherwise under the control of, another company or any person connected with it.
  • Your company must have only qualifying subsidiaries – Any company that your company controls (either on its own or together with another connected person) must: be at least a 51% subsidiary of your company, not be under the control of any person other than your company or another of its subsidiaries, and not be subject to any arrangements which would cause either of those matters to arise.
  • At the time the EMI options are granted the gross assets of your company must not exceed £30m, and your company must have less than 250 full time employees.
  • Your company must be trading, or the parent company of a trading group – This means that your company must operate on a commercial basis with a view to making profit.
  • Your company must have a permanent UK establishment.

Any employee who you want to be part of the scheme must:

  • Work for your company for at least 25 hours a week, or if less, 75% of their working time.
  • Not have a “material interest” in your company.
  • Not be a non-executive director or consultant.

If you can meet the above, you can issue EMI options in relation to fully paid up, non-redeemable, ordinary shares.

What are the benefits?

EMIs are ‘approved’ by HMRC. This means that tax treatment is favourable for both your company, and your employees.

Your company will benefit in the form of a Corporation Tax deduction, which will be given in the accounting year in which the options are exercised, and will be equal to the gain that your employee makes.

The tax benefits for your employees relate to Income Tax. The relevant employee will have no Income Tax liability on the grant of the option. There will also be no Income Tax liability on exercise if, at exercise, the exercise price was at least equal to the market value of the shares at the date you granted the option.

There will also be no National Insurance Contributions (NICs) if no income tax is due.

If you would like to implement an EMI share scheme, please contact us to speak to a member of our Corporate Team.

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Sophie Protheroe

Sophie Protheroe

Solicitor, Corporate & Commercial

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