EMI schemes can be a major attraction for a company as they can both encourage and motivate employees, but there are various and often competing factors to consider before putting such a scheme in place. For example, a company should consider the rights of the current shareholders and also the ways in which employees could benefit from these schemes.
Here, Greenaway Scott takes a look at EMI schemes and the key aspects that companies must consider when putting one in place. If you would like to have an informal discussion about setting up an EMI scheme or would just like some further information, then please contact a member of our team on 029 2009 5500 who would be more than happy to assist you. Alternatively, please submit a query through our website at https://www.greenawayscott.com/get-a-quote.
What is an EMI scheme?
Enterprise Management Incentives (“EMI”) are schemes that companies can adopt to award employees through designating shares to them. There are two types of share schemes; exit based and cumulative. Exit based schemes grant shares to certain employees when the decision has been made for the company to be sold. Cumulative share schemes on the hand allows the employees to accumulate shares over a number of months or years with continued loyalty and effort.
5 Key things to consider:
- Qualification as an EMI scheme: A company must choose which of the two schemes to use and ensure that their proposed scheme qualifies as a valid EMI scheme, otherwise it will not be governed by EMI legislation and may not benefit from any of the available tax reliefs.
- Agreed market value: In order for the EMI scheme to be granted, HMRC must approve the value of the shares. The company must ensure the value of the shares is accurate, as, if they are undervalued, there is a risk that HMRC will refuse the grant, or, if they are overvalued the employees could lose out on returns.
- Rights of current shareholders: Current shareholders’ rights must be accounted for as an EMI scheme will essentially dilute the value of the current shareholding in the company and as a result, the current shareholders may be entitled to less dividends.
- Relevant documents drafted: To ensure the EMI scheme is properly executed, a company must ensure an EMI scheme agreement is properly drafted so as to be both legally binding and also HMRC compliant. Other documents which should be considered when an EMI scheme is put in place are the company’s articles of association which may need to be amended to include pre-emption rights if this isn’t already accounted for and also any existing shareholder’s agreements.
- Appropriate time set aside: Setting up an EMI scheme is a time consuming process and cannot be rushed. A company must ensure that they allow time for the documents to be drafted, for the value to be agreed and also for any necessary resolutions to be passed before they come into effect.
An EMI scheme can be an attractive scheme to have in place for a company as it can reward loyal and motivated employees with shares. This said, it is not as simple allocating new shares to shareholders, the company must ensure the scheme is properly executed taking into account the above considerations and ensuring all documents are drafted carefully to protect the rights of the shareholders and employees.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information, our corporate team would be more than happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team. Alternatively, please submit a quote through our website at https://www.greenawayscott.com/get-a-quote.