An Overview of the Statutory Requirements
- The highly tax-efficient and highly-commercially flexible EMI was first introduced through Finance Act 2000 and has the potential to benefit any company that meets the criteria for a Qualifying Company and whose employee participants meet the criteria for an Eligible Employee.
- To be a Qualifying Company, the company: (1) must be independent throughout the life of the options, (2) must have gross assets that do not exceed £30 million at the date of grant and (3) must not have its trading involved in certain trades for 20% or more of its activities for the life of the options.
- To be an Eligible Employee, an individual: (1) must be an employee within the company or the company’s group, (2) must give “committed time” to the company that amounts to at least 25 hours a week or, if less, for at least 75% of his/her “working time” and (3) must not at the date of grant have a material interest (more than 30%) in the company.
- The maximum initial market value of shares over which an employee may hold unexercised EMI options is £250,000 and the total market value limit for the company to grant options is £3,000,000.
- The company must have fewer than 250 employees to grant options under EMI.
For Motivation Towards A Sale
- Private company currently worth £300,000 has a projected value in 5 years time of £7 to £10 million.
- Fast growth business marketing software technologies to premium clients.
- Corporate objective to exit in 5 years time and in order to realize this ambition needs high calibre engineers that are difficult to recruit in the marketplace and even more difficult to retain.
- Focus the scheme on the corporate objective of realising value after a limited company life with the key employees sharing in the capital sale.
- Option price is set at nominal value only in order to maximise the benefit to the employees.
- Lower level of share options for the support staff, recognising that team performance from all levels is required for the achievement of the corporate objective.
- Exercisable events restricted to exit positions of takeover share sale, management buy-out, flotation on a recognised stock exchange and sale of trade and assets.
- Options lapse for employees who leave for any reason whatsoever, a feature that concentrates the attention on the focus for selling out in 5 years time.
Interesting Scheme Features
- The accumulating right to exercise for one-off grants rather than a series of annual staggered grants at different option prices.
- This feature establishes the option price when the market value of the shares is low.