Can you raise SEIS and EIS at the same time

Can you raise SEIS and EIS at the same time

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Hi,

Early stage companies are frequently asking me about the possibility of raising SEIS and EIS funding at the same time, say when they are looking to raise £400k+ in a first round of investment.

HMRC state this is not possible due to 70% of SEIS funds having to be spent prior to the issue of EIS shares. This is consistent with all guidance I have read and various start-up specialist law firms I have spoken with.

However, companies are saying this is impractical due to the effort and resource required to fund raise for a round, especially if £150k will not last very long. If they need to raise £400K they would then have to do this solely through EIS and this could affect their attractiveness to potential investors.

I have heard of some accounting firms attempting to use a workaround, quoting HMRC guidance and not legislation, collecting say the £400K in one go, placing £150K in to an "SEIS company bank account" and placing the remainder into some kind of EIS escrow account. The SEIS shares are issued at that point and then the EIS shares issued at a date in the future being after the 70% of the SEIS funds have been spent. A legal agreement for the escrow account also needs to be drafted.

I would be interested if others have been asked similar questions and the answers given!

Many thanks,

Replies (3)

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By Steven_Satago
16th Jun 2014 16:02

That's exactly what we did for the investment round in Satago. We maxed out our SEIS, and had a very small amount of EIS (approx £9k). The remainder was non-UK money so it did not matter.

We actually issued all the shares at the same time, but we have left the £9k in Escrow just now until we have spent 70% of the new SEIS money. I was also told that I could also put the SEIS money in a separate account and hold the EIS money in my own separate account. 

Whilst the SEIS/EIS is great for startups and investors, the way they try to keep them separate is impractical. 

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Replying to Nefertiti:
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By ssand
17th Jun 2014 10:44

Issuing shares

Hi Steven,

Thanks for the reply - very interesting. One point though - one can not issue EIS shares until the 70% of SEIS monies have been spent so I would guess in your scenario the EIS shares can not have been issued at the same time as the SEIS shares. Instead, after the 70% of SEIS monies have been spent, the EIS shares are then issued and the EIS money held in escrow is released. Unless I am missing something!

 

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By Steve Kesby
17th Jun 2014 12:14

Shares aren't "issued"...

... for the EIS "70% of SEIS monies spent" test (ITA 2007, s. 173B), or the SEIS "no prior EIS/VCT issues" test (s. 257DK), until the company has:

received subscription monies,issued shares, ANDissued a compliance statement in respect of those shares.

Under SEIS you can't issue a compliance statement until 70% of the money has been spent (s. 257ED) and under both EIS and SEIS it can't be issued until the qualifying activity has been carried on for four months.

All that seems to be necessary is to make sure your compliance statements are issued in the correct order and that you can identify, as a matter of certain fact, that it was the SEIS money (or at least 70% of it) that was spent first.

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