EMI Share Options

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EMI Share Options

For your company

EMIs are great for incentivising, retaining and attracting talent without having to compete with bigger firm salaries (and so preserving precious cash).

For your employees

An EMI Scheme allows employees to pay only 10% tax on equity incentives instead of 40%/45% with unapproved share option schemes.

What is an EMI Scheme?

The Enterprise Management Incentives (“EMI”) scheme is an HMRC approved scheme which allows companies to grant share options to employees in a tax-beneficial way.

When an employee is granted a share option, it gives the employee the right to purchase a certain number of shares in the company in the future at an agreed upon price – this is the “exercise price”. Share options granted under the EMI scheme are “EMI options”.

Typically, the employee will exercise their EMI option (i.e. make use of their right to buy shares) at the time the company is sold. In this case, the employee will receive proceeds for the sale of their shares to the purchaser of the company less the exercise price payable to acquire the shares. The employee does not have to pay out-of-pocket to exercise their EMI option and purchase shares in the company.

How does an EMI Scheme Work?

  • Options are granted to the employees. Exercise price must match market value.
  • Options are exercised subject to conditions. No income tax liability triggered.
  • Options are sold Reduced CGT rate. with Entrepreneurs’ Relief.

What are the benefits for your company?

Early Talent: Granting EMI Share Options can be the key to getting talent on board early, especially when a company does not have enough cash to afford a competitive salary.

Employee retention: The options can be structured in a way to improve employee retention e.g. time-based vesting where employees can acquire more shares if they stay with the company for longer.

Incentivisation: As the employees will potentially own shares in the company it is in their interest for the value of the company to grow. The terms of the options can be set so that employees interests are aligned with those of the company e.g. the shares under option can only be purchased when the company is sold or on the meeting of certain performance conditions.

Tax-advantageous: The tax paid by employees on the growth in the value of the shares under EMI option is potentially significantly lower than alternative remuneration such as salary or options granted under a non-HMRC approved scheme (in some cases, it can be over 35% lower).

How can we help?

With our sister firm Ignition Law, we can set up your EMI Share Options with a combined offer encompassing every aspect of the Scheme from start to end, including liaison with HMRC and advice on the Scheme’s best structure and conditions, from both a legal and financial point of view.

  • Fully integrated service
  • Advise on scheme structure and conditions
  • Help you retain key talent
  • Liaise with HMRC and filing of documents
  • Time-Efficient Cloud-based Non-Intrusive process.

How does it work?

Step 1.

The company agrees with HMRC the value of the shares which the employees will have the right to acquire under the EMI share options.

Step 2.

Legal documents are drafted which reflect the terms of the grant of EMI options to employees.

Step 3.

The EMI options must be granted to employees within 60 days of the date HMRC agreed to the value of the shares.

Step 4.

The EMI must be registered with HMRC and a notification made of any options granted under the scheme within 92 days of the date the EMI options were granted to employees.