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Enterprise Management Incentive Scheme (EMI)

The Enterprise Management Incentive scheme is a share option scheme which is approved by HM Revenue and Customs and enables share options to be granted to employees at the company’s discretion.

Each employee who participates in the EMI scheme must work at least 25 hours per week or spend at least 75 percent of their working time actually working for the company.  Subject to this, options can be granted to selected employees and, when exercised, enable the employees to acquire shares in the company at a preset price, without giving rise to any tax charges.  The preset price must be at least equal to the value of the shares at the time the options are granted and this may be substantially less than the value of the shares when the options are exercised.

It is common practice for performance conditions to be attached to the options before they may be exercised and these can be tailored to each individual employee.  The options must be capable of being exercised within ten years.

In order for an EMI scheme to be established, a valuation of the shares to be issued should be agreed with HM Revenue and Customs and this will form part of the formal documentation.  It should be noted that the maximum value of unexercised options that can be held by one employee is £250,000 and individuals may also not have an interest exceeding 30 percent of the company under the rules of the scheme.

There are a number of other conditions which need to be satisfied by the company and the employees.  However, if these are met and the terms for granting and exercising options are carefully tailored to the business’ needs then the EMI scheme is a tax efficient way to motivate key employees and pass ownership of the company to them in the future.

For more information please contact us.

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