EMI share option scheme solicitors in Leicester

Enterprise Management Incentive (EMI) options let smaller companies give key employees the right to buy shares in future, with tax advantages that other share schemes don’t offer. They’re one of the most useful ways for a growing business to reward and keep people without paying more salary.

How it works

The company grants an option to buy shares at a fixed exercise price, often today’s market value. The option can be exercised later, on a sale of the company or after a set period, or when performance targets are met. If the conditions are met, there’s usually no income tax or National Insurance when the option is exercised, and the gain on selling the shares is taxed as capital gains, potentially at a reduced rate.

Who qualifies

The company must be independent, carry on a qualifying trade, and be within the limits on size and gross assets. Employees must work enough hours for the company and not hold too large a stake already. There are limits on the value of options each employee can hold and the total the company can grant. These limits have been changed recently, so confirm the current figures before planning.

Setting a scheme up

1. Check eligibility for the company and each employee.
2. Decide the terms: exercise price, when options can be exercised, leaver rules and what happens on a sale.
3. Agree the share valuation with HMRC if you want certainty.
4. Pass the board and shareholder resolutions, and update the articles if needed (for example to deal with leavers or a separate class of shares).
5. Grant the options with a written option agreement.
6. Register the scheme and notify the grants to HMRC online by the deadline.

Getting it wrong

Common problems include options granted to people who don’t qualify, missed notifications, and leaver terms that don’t match the articles. They often only come to light when the company is being sold, which is the worst time to find them. EMI needs a solicitor and an accountant working together.

Common questions