EMI Scheme and Share Options - Ridgefield Consulting
If the value of the company increases over time, the option holder could make a significant profit when they sell their shares, which make options very useful for companies that want to incentivise key employees.
Option schemes are very popular with early stage entrepreneurial companies who can offer share options to help them employ talented staff.
Many more established businesses also use option schemes to attract and retain key people. The EMI was introduced in to assist growing companies in attracting and retaining key employees and to reward those employees for taking the potential risk to work for such companies. The main tax benefit of an EMI scheme is that employees do not have to pay the income scheme options that would normally be charged on the market value of any shares or options granted to them.
This value is agreed upfront with HMRC as part of the process. Please see the infographic below which illustrates the benefits, and have scheme options look at our FAQs which explain everything in more detail.
There are also some explanatory videos below or here. Alternative schemes other than EMI are discussed here. How does an EMI scheme work? The option shares can be a different class of ordinary share that could for example be non-voting and subject to buyback if the employee leaves.
Learn about EMI share option schemes | Vestd
The option will be formalised in a legal contract, which will include all the necessary rules and conditions. Some of the matters to consider when designing an EMI scheme will include the following, all of which we will help you with: - Which employees should get EMI options?
The options were structured so that they vest over the following two years, with half of their options each vesting on the first and second anniversaries of the date of the grant. The options vested immediately, on the date of grant.
The exercise price was set at the market value agreed with HMRC. This type of vesting structure is very popular with clients because i it focuses everyone on building value towards a sale and ii it avoids the admin hassles and other issues caused by having employee shareholders prior to an exit.
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A founder shareholder had built his company to a point where turnover and profit were healthy and he was looking to exit in 3 to 5 years. In this way, the founder reserved for himself some of the value he had built in the company.
This structure entailed some straightforward amendments to the Articles of Association. Fifteen employees at a software company were granted options of between 0. The options vested on an exit event.
Why do businesses give EMI share options to employees?
The exercise price was set at zero, whereas the market value agreed with HMRC was 50p per share. This is fine and just means that on an exit, when the shares are scheme options to the acquirer, the option holders will have to pay income tax on the first 50p of any gain scheme options share, because the discount off the agreed market value is a taxable benefit.
Add-ons: if you need some minor legal extras such as a new share class or amended Articles of Association we can execute this work as well - see the pricing schedule Get in touch - call us on or email office millconsultancy.
No income tax or national insurance is payable when EMI options are granted.
The employee can also use their annual CGT exemption. Options provide a very tangible incentive for key employees to stay with the company.
The prospect of a rewarding capital return within a foreseeable period strongly encourages retention of staff, especially as most option agreements provide that options lapse automatically if anyone leaves. It can be a great motivator if all stakeholders are working towards a profitable exit, with everyone focused on building shareholder value.
The costs of setting up and administering the EMI will be deductible expenses for the company against corporation tax.
What Are Employee Stock Options?
Also, after exit, the net market value of the options exercised by employees may be an allowable expense, similar to expensing normal employee remuneration. Companies may set the option price at a discount to the agreed market value or even at nil. However, where this is the case then, on exercise of the option, income tax will be payable on the discount the excess of the market value of the shares on the date the option is granted over emission of fiat money exercise price paid by the employee.
Approved schemes are ones which aim to support businesses grow by offering tax advantages, so long as eligibility requirements are met. The purpose of EMI schemes is to help businesses recruit and retain employees by offering them the opportunity to purchase shares in the company for a fixed price which may be worth significantly more in the future. Not only that but shares that have been purchased through an EMI scheme may qualify for tax relief and companies can also receive tax benefits through reducing their corporation tax once shares have been sold.
We are a small company employing fewer than 20 people so the process of setting up a company share scheme was pretty daunting. The Mill Consultancy worked with us at every stage to make sure we understood the process and got the paperwork right.
It's one of our core activities and our approach is personable but highly scheme options. Accountants We have worked with a number of accounting firms to set up EMI and other schemes for their clients.
Please contact Jerry Davison to discuss how we can work scheme options. We chose the Mill Consultancy to create our share scheme based on the all inclusive package i.
We were very happy with our decision.
Are there reporting requirements? The company: Companies, Irish branches and agencies granting options, including an Irish employer where the options are granted by a non resident parent company, must complete returns of information Form SRSO regarding the options. The due date for filing a return is 31 March following the end of the tax year. Failure to file a return may result in the withdrawal of Revenue approval for the scheme. The due date for which is 31 October annually.
Jerry at Mill Consultancy was fast and effective whilst always maintaining great communication and being happy to help with any questions we had. What to a small company had seemed a daunting task turned out to be a very smooth procedure indeed and all thanks to Jerry for that.
Employee share incentive schemes - Tax savings - KPMG Ireland
Cupris Software 1. Introduction to share options How they work 2. Introduction to the EMI share option scheme The basics and benefits of EMI Watch Video EMI share options: key issues and questions I talk about key areas such as the design of your option scheme, which staff should get share options, how many each, and when they can actually buy the shares.
The purpose of this Share Option Scheme is: 1. The Option Agreement shall be subject to terms and conditions of this Scheme. It refers to the term of service that has a performance-reward relationship with Option, i. Service Agreement to this agreement refers to the employment contract or the service agreement which be signed between the Optionee and the company or any subordinate subsidiary company or any subordinate organization. Shares subject to the Scheme The maximum aggregate number of Shares subject to this Scheme is three hundred and twenty thousand, i.
EMI schemes - are you eligible? I explain the rules that define whether a company and individual employees are eligible for EMI. Videos EMI — exit only or scheme options based vesting? When you set up your EMI option scheme you need to consider scheme options the employees can actually buy their shares.
Setting up an EMI share option scheme In this video I describe the process of setting up an EMI share option scheme Watch Video Share options and company law explanation Giving an employee share options in a company is one way a company can incentivise employees and align their interests with those scheme options the business.