Is the UK startup ecosystem a world leader? The figures certainly suggest so.
According to the Office of National Statistics, there are more than 12,000 fast-growth startups in Britain. Dealroom ranks the UK third globally for VC investment, after the US and China, with 70% of that investment taking place in London.
These impressive stats aren’t a happy coincidence, however. They’re the result of deliberate efforts to make the UK an attractive place to do business. One of the UK Government’s best-known and most successful initiatives is the enterprise management incentive, or EMI. It provides a tax-efficient means of rewarding, incentivising and retaining talented employees.
To reap the benefits of EMI, a company must set up its own EMI share plan. But how exactly is it done? In this article, we’ll explain the ins and outs of EMI share plans, from the documentation required to the process of legal adoption.
For a detailed breakdown of share plan setup, read through from start to finish. If you know what you’re looking for, jump ahead to a particular section.
An EMI share plan is your framework for granting options to employees through the EMI scheme. It defines the rules, requirements and limitations of your share scheme, and is unique to your business. Your EMI share plan should specify:
You must prepare share option plan rules that capture the specifics of your scheme, and include a definition for every term used across your plan documents.
Although you can customise your share plan, there are certain conditions that must be met in order to qualify for EMI. Your company must:
Put simply, if you want to grant EMI options, you need an EMI share plan. The EMI scheme is widely regarded as the best share scheme in the UK, with benefits to both employers and employees.
Benefits of EMI schemes for employers:
Benefits of EMI schemes for employees:
The best way to secure these benefits is to set up your scheme with the help of qualified share plan providers. Skipping any important steps – whether that’s outlining your plan rules or getting investor consent for creating an option pool – puts you and any share plan participants at risk, as unapproved options may become a tax burden.
What’s more, without a watertight EMI share plan, there’s a possibility the terms will vary for each grant, which may put some grantholders at an unfair advantage or disadvantage to others.
Find out more about employee equity in the UK
You must set up your EMI share plan completely before granting any EMI options to employees. This includes getting the plan legally adopted by your board and shareholders as necessary.
It’s important to note that share plan setup isn’t the only dependency in granting options: you’ll also need a company valuation approved by HMRC. Approval from HMRC is known as pre-clearance and guarantees that the share price stated in the option grant will be upheld by HMRC in future, upon exercise or sale of the shares.
To speed up the overall process, perform a company valuation at the same time as you set up your EMI share plan.
Discover company valuations from Capdesk
Once you’ve decided how to configure your share plan, you’ll need to lay out your plan in a number of formal documents. At a minimum, these should include:
You may also need:
To finalise your EMI share plan, it needs to be legally adopted by your board. Board adoption can vary from company to company, and the level of consent needed from investors will be determined by your existing shareholder agreement.
Typically, you’ll need to:
How long it takes to set up an EMI share plan depends on many factors, including who you’re working with and how responsive those stakeholders are. Whether you’re working with on-call lawyers, whether your board meets and communicates regularly, whether you know exactly how you want to configure your plan: all of these factors will affect your timeline.
Capdesk is an efficient provider of EMI share plans because we take care of the time-consuming document development in advance. With Capdesk, you’ll save time by using our customisable templates instead of designing documents from scratch. Sign up to Capdesk today and you’ll be ready to issue options within 6-8 weeks.
When setting up a new EMI share plan, you need to register the plan with HMRC. You can do this through the HMRC Online Services portal.
Currently, you must notify HMRC of any EMI option issuances within 92 days of granting. However, the UK Government recently announced a change to this rule. From 6 April 2024, you’ll have until 6 July to notify HMRC of any EMI option granted in the previous tax year.
If you’re ready to set up your EMI share plan, Capdesk can help. Sign up to Capdesk and you’ll be able to design your scheme, prepare the documentation and begin issuing equity to your employees in a matter of weeks, all on a single platform.
Phase one: prepare
Request an EMI share plan and you’ll be connected with a Capdesk analyst. They’ll guide you through the necessary preparations, helping you to ensure:
Capdesk will then generate the required documents. These will be customised to the rules of your scheme, within certain parameters. Our templates follow market standards, and have been developed by a team of legal experts.
Phase two: adopt
To complete the process, you must legally adopt the plan as a company. Capdesk’s involvement in this stage is minimal, but your analyst can help you understand what’s needed and provide templated documents for this purpose.
Phase three: publish
Once the plan’s been adopted, it’s time to configure your Capdesk account. Your dedicated analyst will generate the share plan on the platform and adjust the settings to match your scheme rules. With that complete, you’re ready to grant equity to your employees. Your analyst will walk you through the process if needed.
Explore Capdesk EMI share plans now:
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