The Enterprise Management Incentive ("EMI")
This is a Government sponsored, tax-efficient share option scheme. It is normally offered as a targeted incentive to selected employees, but there is no limit on the number of employees who may participate in an Entperise Management Incentive Scheme (subject to an overall limit of £3 million on the value of shares that may be offered under option).
Employees are granted the right to purchase company shares in the future at a price set at the date of grant. The share option gains value when the value of the shares rises above the purchase (exercise) price.
Specifically designed for SMEs
The Enterprise Management Incentive is designed for use by smaller quoted or unquoted companies. The company must be independent, with gross assets not exceeding £30 million at the date of grant. Companies engaged in activities such as certain financial or legal services, dealing and property are excluded. Overseas companies can offer EMI share options but only in some circumstances. Contact us for detailed information on these regulations together with guidance on how HM Revenue and Customs interpret them in practice.
Each employee may be offered options over shares worth up to £100,000 at the date of grant (this is an all-time limit, not per grant). The shares may be with or without restrictions and may be non-voting.
EMI share option gains
The exercise price of the share options can be set at the discretion of the employer. If below fair market value at the date of grant, income tax will be payable at exercise equal to the difference between the exercise price and fair market value. The remainder of the gain will be subject to capital gains tax reduced as appropriate by the business asset taper. Contact us for guidance on how your scheme will be taxed.
Exercise of EMI share options
Individual performance conditions can be attached both to the grant and the exercise of each EMI share option, and EMI share options can therefore be used as powerful short term or medium term incentives, or both. There is no statutory minimum period before EMI share options can be exercised.
Other EMI share option considerations
There is no need to obtain approval from HM Revenue and Customs prior to establishing an Enterprise Management Incentive Scheme but EMI share options must meet detailed conditions and make annual returns.
Many private companies will wish to ensure that employees can convert their shares into cash without the company having to be sold or floated. This can be done by means of an employee benefit trust.
For further information download our factsheets on the Enterprise Management Incentive and Employee Benefit Trusts, or see the relevant section from the 2006 Directors' Guide to Employee Share Schemes, here.
