EMI Share schemes and incentives solicitors
Explore how we help businesses with their corporate legal requirements.
Contact our teamOur legal experts for share schemes and incentives provide expert advice and support to businesses looking to implement effective and compliant employee share schemes, equity incentives, and other reward structures.
Our team of EMI share options solicitors can assist with all aspects of share schemes and incentives, including the design, implementation, and administration of EMI share option plans.
Employee share incentives come in a range of different forms and formats, the most common of which is a share option (an agreement allowing an employee to hold shares at a point of time in the future). These have always been popular, but became increasingly prevalent as businesses took advantage of the tax efficiencies available. There is, however, a wide spectrum of arrangements to suit every structure and business – some involve options; others involve employees actually holding shares, or payments linked to share performance.
In all cases, the schemes exist to motivate employees, aligning their interests with the shareholders. It is pointless having an employee incentive in place if the employee doesn’t understand its value, or the incentive fails to provide the right rewards at the right time. It is vital, therefore, to get this work done correctly.
Arrangements to benefit your employees could include:
Enterprise Management Incentive (EMI)
EMI Schemes are one of the most popular employee incentives, their aim being to grant specific employees the right to acquire shares in a tax-efficient manner. Under this arrangement, employees benefit from being taxed on a capital gains basis rather than through income tax, making it a highly efficient way to incentivise them.
The options can be linked to performance conditions, such that the employees are incentivised to achieve objectives set for them to allow the options to vest. They are often only exercisable when there is an impending ‘exit’ (usually a share sale) by the shareholders such that the employees only become shareholders close to, or at the time of, a wider sale.
Establishing an EMI Scheme sooner than later can be beneficial as the cost of the option (which is payable when it is exercised) will be determined by the value of the company at the date of the EMI option grant, not when the option is exercised or the company sold. Accordingly, it is best not to wait to set up an EMI Scheme until a company is nearing the point of sale.
Unapproved Share Options
Not all businesses and employees will qualify for EMI, and many clients will therefore look to implement an unapproved share option scheme – basically the same right to acquire shares as under an EMI Scheme, but without the tax benefits. Historically, unapproved share options are seen as tax-inefficient (which is often the case) but tax inefficiencies can be limited by the way that the Unapproved Share Option scheme is structured, so advisers must know the different options, and how they can affect the tax position.
LTIP arrangements
LTIP arrangements are common for listed companies and incorporate a range of different option or bonus arrangements. We have worked with clients on numerous instructions to assist in putting these arrangements in place. Again, because they tend to be rather inefficient from a tax perspective, it is important to have an adviser who knows how to structure the scheme properly, in order to limit any tax impact.
Growth Shares
These allow employees to hold shares which have a stake in the future increase in value of the business only. Growth shares can enable employees to hold shares rather than options, and sharing only in the increase in value has the benefit of limiting the tax payable.
The above are just a few examples of arrangements available, and we are often also instructed to advise on similar arrangements for non-employees, such as consultants or non- executives.
Our team of corporate solicitors
Your specialist legal experts
Much of the work of implementing incentive arrangements centres on the tax implications, and we will always liaise closely with your tax adviser to ensure that the implications of any incentive arrangement are as beneficial as they can be. Often, the main reason for setting up an incentive arrangement is to take advantage of the tax benefits.
A few questions worth considering before implementing incentive arrangements might include:
- Are there any performance or value criteria to be met before the option can be exercised?
- What if the employee leaves?
- What happens if the employee dies or becomes unwell?
- Should options vest, meaning that even following leaving a certain proportion of options can be exercised?
- What happens on a sale? Can options be exercised prior to a sale?
- What documentation does the employee need to execute when exercising the option?
- When the employees’ shares are sold, what sale documentation are they required to execute, and does the employee need to give the same warranties and restrictive covenants as the main shareholders, even though they are probably a small minority?
Incentive arrangements can be as simple or as complex as circumstances require, but it is important to consider all the options and possibilities in order to know their potential value to you.
Why choose our solicitors to help with share schemes and incentives?
We have a team of expert solicitors specialising in share schemes and incentives, with years of experience helping businesses of all sizes. We understand the complexities of these schemes and can provide tailored advice to ensure your business is compliant and your employees are incentivized. With a focus on collaboration and communication, we work closely with our clients to achieve their goals and provide a seamless service. Choose us to ensure your share schemes and incentives are structured to maximise their benefits for your business and employees.
How can our solicitors help with share schemes and incentives?
Our solicitors have extensive experience in advising businesses on share schemes and incentives, helping them to design and implement effective strategies that attract and retain top talent. We can assist with all aspects of share schemes, including drafting documentation, advising on tax implications, and ensuring compliance with regulatory requirements. Our goal is to help our clients create a culture of ownership and incentivize employees to drive business growth and success.
We have offices in London, Richmond, Southampton, Guildford, Lymington and Woking and offer specialist corporate legal services to clients nationwide.
Contact our corporate team
Frequently asked questions
How does the employee share scheme work?
An employee share scheme allows employees to purchase shares in their company, usually at a discounted price. This scheme provides employees with a way to own a stake in the company, aligning their interests with the company’s success and potentially benefiting financially as the company’s share price rises.
Are employee share schemes worth it?
Yes, employee share schemes can be worth it as they provide employees with the opportunity to have a financial stake in the company they work for and can benefit from any increase in the company’s value.
Is a share incentive plan worth it?
A share incentive plan can be worth it if it aligns with the individual’s financial goals and risk tolerance. It can provide potential financial gains, but there are also risks involved, such as potential losses if the company’s stock price declines.
What is the benefit of employee share scheme?
The benefit of an employee share scheme is that it allows employees to own a stake in the company, providing them with a sense of ownership and incentivising their performance and loyalty.
How does an EMI scheme work?
You agree (normally with your accountants) a valuation for the relevant company. Your employees are then given an EMI option to buy shares in your company at a future date at a price – the “exercise price” – which relates to that valuation. Such options are often exercised after meeting certain conditions, e.g. performance and/or service period.
Once the conditions have been met, or if there were no particular conditions, employees can then exercise the options to buy the shares. Such condition is often that an ‘Exit’ (usually a sale of the company) is expected. If your company has done well and the share value increased, employees can potentially sell their shares at higher price than the cost to exercise the option.
How long does EMI valuation take?
The duration of an EMI valuation can vary depending on the complexity of the situation, but it typically takes a few weeks to a couple of months.
Who can set up an EMI scheme?
Only companies and organisations can set up EMI (Enterprise Management Incentive) schemes in the United Kingdom. These schemes are typically used to offer share options to employees as a form of incentive and can provide certain tax advantages for both the employees and the company.
Who qualifies for EMI share options?
EMI share options are available to employees of small and medium-sized companies that meet certain criteria set by the UK government. These criteria include the number of employees, the company’s gross assets, and the nature of the company’s business activities.
What happens when EMI options are exercised
When EMI (Enterprise Management Incentive) options are exercised, the holder has the right to purchase company shares at a predetermined price. Once exercised, the options are converted into actual shares, and the holder becomes a shareholder with all the associated rights and benefits, such as voting rights and potential dividends. Often, such shares are then immediately sold to a third party buyer.
By way of example, ABC Limited might grant Mr. Moore 500 EMI Options with an exercise price of £10 per share (such valuation being agreed with HMRC as the value of each share at that time). Eight years later, the company has grown and been successful, and XYZ Limited approaches the shareholders of ABC Limited with an offer to purchase all of the shares at £100 per share. Here Mr. Moore would exercise his option, pay £5,000 to receive the shares, and then immediately sell them for £50,000 to XYZ Limited. In practice, such exercise would likely be ‘cash-less’ such that XYZ Limited in effect pays the option price on Mr. Moore’s behalf.
Explore our corporate team brochure
Meet our corporate team and explore more detail about the legal services we offer organisations.
Our team accreditations
