The Power of EMI shares

by | Nov 17, 2023 | FAQ, Legal Updates

If you’re a company Director looking for ways to motivate your current team and attract fresh talent, Enterprise Management Incentives (EMI) shares are a powerful tool to do just that.

Offering EMI shares helps to align the interests of key employees with those of your company and its shareholders. In this, we’ll explore the world of EMI shares, their benefits, and how Directors can leverage this incentive scheme to unlock their company’s full potential.

What are EMI shares?

EMI shares are a type of share option scheme designed to incentivise and reward employees, including Directors, by granting them the opportunity to purchase shares in the company at a predetermined price.

These schemes are particularly advantageous for small and medium-sized enterprises (SMEs).

Benefits of EMI shares for directors

EMI shares offer a range of benefits that make them an attractive option for Directors:

  1. Tax Advantages: One of the most significant advantages of EMI schemes is their tax-efficient nature. When employees, including Directors, exercise their EMI share options, they may be eligible for favourable capital gains tax (CGT) treatment, potentially resulting in lower tax liability when they sell the shares.
  2. Alignment of interests: EMI shares align the interests of employees, such as Sirectors, with the company’s growth and success. Since the value of the shares is tied to the company’s performance, participants are motivated to work toward its long-term goals.
  3. Retention of top talent: Talented Directors are more likely to stay with a company that offers an attractive long-term incentive program.
  4. Flexible schemes: EMI schemes allow for flexibility in terms of the number of shares granted, exercise prices, and vesting schedules, enabling companies to tailor the scheme to their unique needs.

How to implement a EMI share scheme

Consider:

  1. Eligibility criteria: Determine which employees will be eligible to participate in the EMI scheme.
  2. Shares valuation: Establish the market value of the shares to be granted under the EMI scheme. This value is used to calculate the exercise price, which must not exceed the market value.
  3. Setting performance goals: Define the performance or growth goals that employees must achieve to unlock and exercise their EMI share options.
  4. Legal compliance: Ensure that the scheme complies with the legal and regulatory requirements. You will need to file with HMRC to receive a valuation of your business. This process typically takes between two and four weeks from start to finish.
  5. Communication: Transparently communicate the EMI scheme to all employees and provide clear guidance on how it works. Your employees will likely want to know why you have chosen an EMI share scheme, and how it will benefit them. They may also have some questions about the tax implications of their options, or how to exercise them in the future.

HMRC main requirements

The following are the current requirements and are subject to change:

  • The purpose must be to retain or recruit employees and not to avoid tax.
  • You may only grant an employee a maximum value of £250,000 in options.
  • The most that a company can grant is £3m in unexercised options at any one time.
  • Your company must be independent. More than 50% of the ordinary share capital must not be owned or controlled by another company, either now or in the future.
  • If your company has any subsidiary companies, they must also qualify for EMI.
  • You must have fewer than 250 full-time employees.
  • Your business must have a permanent establishment in the UK.
  • Your business may not participate in one of the disqualifying industries, including financial activities, property development, farming, or shipbuilding.

Are EMI shares right for your business?

In today’s competitive business landscape, it’s crucial to seek innovative ways to enhance employee motivation, attract top talent, and drive long-term company growth.

EMI shares combine the advantages of tax-efficiency with the alignment of employee and shareholder interests. When strategically implemented, EMI shares hold the potential to unlock new horizons for your company, securing a prosperous future while retaining and rewarding your most valuable asset—your talented team. of directors.

If you’d like to chat through whether EMI shares are the right direction for your business, get in touch with me today.

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