EMI Enterprise Management Incentive | StellarFD

EMI - Enterprise Management Incentive

Attract and retain the very best talent and align their interests with those of the business owners.

What are share options?

A share option gives someone the right to buy a company’s shares in the future at a price that is fixed today. If the value of the company increases over time, the option holder could make a significant profit when they sell their shares.

Option schemes are very popular with start ups and early stage companies as they can secure a longer term commitment from staff and attract key team players when the company is perhaps unable to pay market salaries. Established businesses also use option schemes to attract and retain key staff. The chance to buy shares, to be a stakeholder and benefit in the company’s growth alongside the owners is a powerful motivator and aligns the interests of key staff with the business owners. It also makes an employee feel more valued.

Aside from modest set up costs, there are no further costs associated with share options.

What is EMI?

An Enterprise Management Incentive (EMI) share option provides significant tax advantages to employee option holders compared to other share option schemes, substantially boosting the value of the incentive.

The main tax benefit is that employees do not have to pay the income tax that would normally be charged on the market value of any shares or options granted to them. If employees are given options under an approved EMI, they are only charged capital gains tax (CGT) at a current rate of 10% on the increase in value when they sell so long as that price is at or above the market valuation of the shares on the date of granting the options. The employee can also use their annual CGT exemption. The market valuation is agreed upfront with HMRC as part of the process.

The costs of setting up and administering the EMI will be a deductible expense for the company against corporation tax. Also, after exit, the net market value of the options exercised by employees may be an allowable expense, similar to expensing normal employee remuneration.

If the option’s exercise price is set at the same or a higher price than the agreed market value of shares on the date that the option is granted, then no income tax or NI is payable when the option is exercised. Companies may set the option price at a discount to the agreed market value (or even at nil). However, where this is the case then, on exercise of the option, income tax will be payable on the discount (the excess of the market value of the shares on the date the option is granted over the exercise price paid by the employee).

How can you help me?

We can organise everything you need to set up your EMI scheme, offering guidance and advice from start to finish. We’ll start by discussing your objectives and advising on the alternatives for structuring your scheme. Once agreed, we’ll draft the EMI legal agreements reflecting the rules of the scheme, share option certificates, board minutes and letters to option holders. Alongside this work we will carry out your company share valuation and reach agreement with HMRC.

Following a free initial consultation where we understand your objectives and confirm the eligibility of the scheme, we will quote you a fixed fee for the above.

We are also happy to discuss and advise on non-approved share option schemes for other parties or non-share based incentives motivate your staff.