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This is a freeview 'At a glance' guide to designing an EMI share option scheme.

For more detailed guidance see our subscriber guide, EMI: Enterprise Management Incentive scheme

Designing an EMI share option scheme

HMRC do not actually approve option schemes under EMI, although they do agree the company value. The employer ensures that their scheme qualifies for EMI. Providing it does, the tax treatment is in accordance with the legislation for EMI.

Setting up a share scheme or EMI share option scheme

Articles and rules

The employer will need to consider the effect of a share scheme on existing shareholders' rights and perhaps amend existing shareholder agreements, as well as setting up the EMI scheme rules and an option agreement.

An exit-based EMI scheme means that you do not have to worry too much about having employee shareholders as they will only hold their shares for a fraction of second; their options vest and they instantly sell out to your buyer.

If you are offering EMI options and these vest over time you will need to amend your Articles to include provisions to deal with leaving employee shareholders including death, pre-emption rights, rights of transfer and beneficial ownership and disputes between shareholders (if you are a pessimist!). Having worked out that you then need to look at the tax position and if necessary modify your plans to suit.

Key factors:

Tax

Valuation

Timings

Planning issues

Health warning

A share or share option scheme should be approached with great care. If not, the result may be something that does not make sense and it could make life very complicated and difficult for the company and its shareholders if there is later a dispute over the agreement or shareholders fall out.

If you would like assistance in designing a share scheme or share option scheme, we advise advisers as well as employers, so please contact the Virtual Tax Partner Support service.


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