Various statutory requirements must be met at both the time of grant of EMI options and throughout the life of an option. Care must be taken to ensure that the requirements are met, as failing to meet them would be classed as a disqualifying event, resulting in a restriction of the tax relief available when the option is exercised.
EMI schemes can only apply to:
Qualifying companies
A company must:
- have a permanent establishment in the UK;
- be independent of other companies and have only qualifying subsidiaries;
- be a trading company or parent of a trading group;
- have gross assets of £30 million or less at the time of grant;
- have fewer than (the equivalent of) 250 full-time employees at the time of grant; and
- not work in ‘excluded activities’, such as banking, farming, property development or legal services provision.
Qualifying shares
EMI options can be satisfied by either issuing new shares or transferring existing shares. However, the shares must be fully paid up, non-redeemable ordinary shares.
Qualifying employees
There are additional stipulations as to who can be granted EMI options. For example, employees must work for the company for a minimum of 25 hours per week, or if less, 75% of their working time, or have no other remunerative employment or self-employment.
Qualifying options
EMI options must be exercised within ten years of the grant and be set out in a written option agreement, which in turn must meet several requirements. These include setting out details of the grant date, the number (or maximum number) of shares under the option, and the exercise price or method for determining the exercise price, and how and when the option can be exercised.
In addition to the above, there are certain statutory limits on the grant of EMI options, including that:
- an employee may not hold unexercised EMI options over shares with a total value in excess of £250,000
- employees that have been granted EMI options over shares with a total value of £250,000 cannot be granted further EMI options for a further period of 3 years
- the total value of all unexercised EMI options must not exceed £3 million at any time.