emi share options

emi share options

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I have a client who has started an EMI scheme. He owns all of the shares in the company, and is intent on passing 60% or so to employees via an EMI scheme.  The scheme has been agreed with HMRC, options granted to employees, and the success of the company has led my client to offer the shares to employees free.  That is, he expects the company to fund the employees, so that they can buy the shares from him.  I wonder if it is possible for the shares to be bought by the company from our client, and then issued to the employees without any payments needing to go through payroll?

If the company pays bonuses to the employees to provide them with the net cash to buy the shares from the client, PAYE and employer's/ees NI will increase the cost significantly.  Surely there is another way to do this - any ideas?

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By gbuckell
18th Mar 2013 16:13

Care

Are the options already granted over new shares or shares owned by the client?

I assume that the option price (agreed with HMRC?) is considered to be below current market value. If so and your client wants the employees to have shares now then the company needs to give them bonuses to exercise the options under the EMI. Doing it any other way is likely to cost more tax.

One could have granted options at below market price but I assume this did not happen. This would have saved national insurance costs.

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By gbuckell
22nd Mar 2013 15:51

Option agreement

It should not be a question of perception. The option agreement (which must be in writing - ITEPA 2003  Sch 5 para 37) should state who is granting the options - whether the company itself or the existing shareholder (it is possible to do it either way). This must also state the option price and the number of shares over which options are granted.

If the company has granted the options it might be possible for the company to fulfill the requirement by buying existing shares from the shareholder. But HMRC might tax the proceeds as a dividend rather than capital. Furthermore this may cause other problems. If he wants to give them 60% are the options over a number of shares equal to 60% of the current share capital?

To illustrate, if 100 shares are currently in issue, the options could be over 60 shares. If existing shares are used then the employees get 60%, If new shares are used then they would only get 60/160 or 37.5%. If new shares are to be used then the options should be over 150 new shares giving them 150/250 or 60%.

Correct me if I have misunderstood but you appear to be suggesting that there is some flexibility in these issues. If the written agreement is not adhered to the options cease to be qualifying options. It is for this reason that I commented that the only way forward might be for the company to give cash bonuses that are used to exercise the options despite the NI costs.

As mentioned before, if tthe current market value has not increased much it may be better to dump the old options and grant new ones with the terms you want, e.g. nominal exercise price.

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By Practise_Accountant88
21st Sep 2016 15:17

Hi,

Should really start a new subject but my question follows quite nicely from this topic.

Where an EMI is issued by the company under a 10 year vesting period at which point is the new share capital issued. Presumably upon taking up the options in 10 years. Can someone please clarify this for me.

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