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EMI share schemes – right for my business?

24th April, 2014

As the market picks up and the 'war for talent' re-emerges, many companies are looking at Enterprise Management Incentives (EMI) share schemes to help retain and motivate key members of staff.

Doug Perry of Nottingham chartered accountants Clayton & Brewill explains how the schemes work.

Clayton & Brewill are working with several business owners at the moment to help them implement EMI schemes to reward and retain key employees.

Designed well, EMI schemes are flexible, highly tax-efficient and can really help to align employee and business objectives in order to drive long-term business success.

Companies can give their employees the right to purchase shares in the business at a fixed price and with no tax liability. When the employee sells these shares (so long as certain criteria are met) the profits they make will be free of both national insurance and income tax.

EMI schemes can be designed to reward employees for past performance in a similar way to a bonus, they can be used to incentivise future performance and can also be an effective way of 'locking in' key employees. From a company perspective, EMI schemes can also reduce your corporate tax liability.

Who is eligible for an EMI share scheme?

The schemes are very much designed for smaller companies and SMEs – to be eligible you must be an independent business (ie: not a subsidiary of a larger corporation), have a turnover of less than £30 million, employ fewer than 250 staff and be resident in the UK.

You can grant share options to any or all employees who spend at least 75 percent of their time (or 24 hours per week – whichever is greater), working for your business. And the maximum option that can be granted to each employee is £250,000.

Ensure the EMI share scheme fits your objectives

Before embarking on an EMI scheme you need to think through your objectives.

For example, do you want to try and tie in employees for a certain period of time?

Make the share issue too low and you might struggle to have the desired effect. Make it too high and you could have problems with ownership being diluted. Also, think about how and when employees can exercise their right to sell their shares.

Remember the shareholder agreement

Shareholder agreements are essential for EMI schemes in order to protect the majority shareholders in the future. Your agreement should cover aspects such as share buyback provisions for when employees leave the company.

Specialist EMI share scheme advice

Put simply, EMI schemes can be a powerful way of incentivising future success. From an employee perspective they are valuable and tax efficient and, from an employer angle, they help to ensure that your people are aligned with the overall objectives of the business.

To find out more about setting up a successful EMI share scheme for your business, contact Doug Perry by email or on 0115 950 3044.

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