Eligibility criteria for EMI
What types of companies can run an EMI scheme?
There are strict qualification criteria for EMI schemes, which must apply on the date the options are granted to an employee.
- The scheme must have been set up for genuine purposes: that is, to incentivise employee loyalty and performance, rather than just for the purposes of avoiding tax.
- Both unquoted and quoted businesses may qualify, but they must be independent: no more than 50% of the ordinary share capital can be owned or controlled by another company. There must also be no arrangements in place that could result in the company becoming a subsidiary or otherwise controlled by another business.
- The company must be carrying out a qualifying business activity. Excluded business activities include property, financial services, legal services, accountancy and farming. A full list of excluded activities can be found here.
- The company must have a permanent establishment in the UK.
- Gross assets of the company must not exceed £30 million.
- If the business has any subsidiaries these must also meet the qualification criteria. The EMI options must be granted over shares in the parent company.
- The company (or parent group) should employ no more than 250 full-time employees.
- No more than £250,000 of options can be granted to an individual employee and the total value of unexercised options must not exceed £3 million.
Which employees can participate?
- There is no cap on the number of employees who can hold EMI options.
- No employee can hold options worth more than £250,000 on the day the options are granted.
- All employees granted options must work at least 25 hours per week, or spend at least 75% of their working time, working for the company whose shares are the subject of the options (or must be employed by a qualifying subsidiary of that company). These conditions must continue to be met throughout the duration of the option’s vesting period.
- Employees who have a material interest in the business (controlling more than 30% of its share capital) cannot participate in the scheme.
- Three years after an employee has exercised options under the scheme further qualifying options can be granted, provided that any other remaining options still retained from the first grant are worth less than £250,000.