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Enterprise management incentive (EMI) share options are designed to assist smaller companies with potential growth and future development and attract and retain the most suited employees for their business.
Companies also use EMI share options as they attract generous tax treatment (as usually there is no income tax or National Insurance contributions (NICs) payable on the grant of the EMI option).
It is important to consider seeking advice from an accountant before taking steps to introduce an EMI share option plan.
There have been a few recent changes to the rules around EMI share option plans from 06 April 2023, which are discussed below.
EMI options are a popular way of incentivising employees in a company as an EMI share option plan can be tailored (subject to the satisfaction of working time and other criteria) to suit the relationship between the individual employee involved and the company, or EMI share options can be drafted for all employees in a company as part of a scheme.
The conditions to exercise the options may be flexible and subject to specific performance targets or simply by a minimum time requirement.
There are several statutory requirements for a company to qualify to introduce an EMI share option plan, some of which will be satisfied at the time of the grant of the relevant EMI share option plan.
The requirements include:
Generally, EMI share options can be satisfied by newly issued shares or by the transfer of existing shares from a shareholder.
The shares subject to the EMI share options must also be fully paid up.
In addition to the above, to be eligible to be granted an EMI share option, an employee must work for the company (or group) for at least 25 hours per week, or if less, 75% of their working time.
It is also important to note that EMI share options can only be granted to employees and cannot be granted to non-executive directors or consultants.
The EMI share option plan (and any relevant EMI share option agreement) can determine when and under what conditions EMI share options can be exercised.
The EMI share options must be capable of being exercised within ten years of the date of the grant.
In the event that the options are exercisable upon death, they can only be exercised within 12 months after the option holder's death.
As part of the Spring 2023 Budget, the government announced changes to EMI share option plans, including:
From 6 April 2024, it is anticipated that the government will also extend the deadline for notifying an EMI share option from 92 days following the grant to 6 July following the end of the tax year.
If you need any legal advice regarding EMI share option plans and the recent changes, please contact our expert Corporate lawyers on: