If you are reading this article, you have probably considered rewarding your employees by giving them an interest in your business through Enterprise Management Incentive (EMI) options.
EMI options are a powerful tool for small and medium-sized enterprises (SMEs) to attract, retain, and motivate employees. However, to ensure that these options are valid and qualify for the associated tax benefits, specific criteria must be met. Understanding these criteria is essential for companies looking to implement an EMI scheme effectively.
To grant EMI options in the United Kingdom, a business must meet specific criteria to qualify for the tax advantages associated with EMI schemes. If you are considering granting EMI options to your employees, you should first consider the following key criteria:
- Qualifying Company: your company must be a trading company or the parent company of a trading group and it must have permanent UK establishment. It also cannot be engaged in certain excluded activities, such as banking, farming, or property development.
- Size of the Company: your company must have gross assets of £30 million or less and must not have more than 250 full-time equivalent employees at the time the options are granted.
- Independence: your company must be independent, meaning it cannot be a 51% subsidiary of another company.
- Employee Eligibility: the employees to whom you consider granting EMI options must work at least 25 hours per week or, if less, 75% of their working time for the company. They must not hold more than 30% of the company’s ordinary share capital.
- Option Limits: The maximum value of unexercised EMI options that can be granted to an individual employee is £250,000 at any time. The total value of unexercised EMI options for the company must not exceed £3 million.
- Option Terms: The options must be granted in writing and must set out fundamental details such as the grant date, the number of shares granted and the exercise price for such shares. The option must also be capable of being exercised within 10 years of the date of grant, and the exercise price must not be less than the market value of the shares at the time of grant.
Understanding the relevant criteria for granting a valid EMI option is essential for any SME looking to implement this beneficial scheme. By ensuring compliance with the requirements related to company status, employee eligibility, share characteristics and proper documentation, businesses can maximise the advantages of EMI options. This not only enhances employee engagement and retention but also contributes to the long-term success and growth of the organization. Proper planning and adherence to the criteria will help create a robust EMI scheme that benefits both employees and the business alike.
We Can Help
To ensure that your business and the proposed options meet the necessary criteria you should consider engaging legal professionals and tax specialists early in the process so that they can help you assess the current position within your organisation. If you are considering the introduction of an EMI share option scheme, reach out to us to schedule a free consultation with one of our commercial law specialists! You can Contact Us or call us on 01244 312306.
