Setting up an EMI scheme, the company must satisfy certain conditions. The employees who are to be granted options must also satisfy conditions in relation to their working arrangements. If the conditions are met, favourable tax treatment will apply for both the company and the employee.
An EMI scheme consists of an Option Agreement, and the Plan Rules. The Option Agreement itself can be tailored to consider factors such as job role, seniority and the value different employees bring to the business. The scheme can therefore apply to different employees in different ways.
There are a number of other benefits to setting up a company share scheme, but as a founder of a startup, growth will most likely be your key motivator.
A share scheme is a way of founders sharing equity with employees. Equity in a company means ownership – anyone who holds shares in a company owns part of the company (and therefore its assets).
Why should startups offer equity?
Share schemes can be equally, if not more, beneficial to startups with few employees than to large companies with many employees.
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EMIs are most commonly implemented by entrepreneurial companies of small to medium size. To qualify companies must meet certain criteria. They must:
- Be independent, therefore not a 51% subsidiary of another company and any subsidiaries your company may have must also qualify.
- Carry on a “qualifying trade” – certain trades are excluded, for example banking, insurance, property development, farming and hotel management.
- Have fewer than 250 full time employees
- Have gross assets of less than £30m
- Be permanently established in the UK
EMIs are relatively simple schemes to implement and are, in turn, easy for the employees concerned to understand.
EMIs are HMRC ‘approved’, meaning that they receive favourable tax treatment is in relation to both the company and employees.
There is a typical “lawyer’s answer” to this question, which is – it depends! The scheme that is best suited to a company depends on the founders’ motivations, which could range from tax effectiveness, affordability or security for their own interests.
Types of share scheme
- Enterprise Management Incentives (EMIs)
- Company Share Option Plans (CSOPs)
- Save As You Earn (SAYE)
- Share Incentive Plans (SIPs)
- Growth Shares
- Unapproved Options