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Slightly off-topic
Does the change offer a basic planning opportunity? Say company is considering issuing 10% of its share capital to 10 employees (1% each). Straight issue of shares - no ER. But grant options that meet all the EMI conditions, and the options are exercised next day - ER after 12 months. Too good to be true?
Para 4 Sch 5
It does sound too easy and I suspect might be caught by ITEPA 2003 Sch 5 para 4 which prevents options from being qualifying options where they are issued as part of a scheme to avoid tax
Why would that be tax avoidance?
Not sure why that would be deemed to be avoidance. If the EMI conditions are met, there's nothing to stop options being exercised immediately and it's likely to trigger either an income tax charge (if exercised at a discount to market value) or the employee will pay MV for his or her shares. Nor is CGT being avoided, it's just that the EMI scheme would be structured so as to enable ER to be claimed and a lower rate of CGT secured.
I don't see how that could be tax avoidance.
Surely the relaxation in these rules is designed to encourage employees to actually own shares (and not just to exercise options immediately before a share sale)? Another planning opportunity - dividends can be paid.
Practical company share scheme problems
The new two speed system will put small companies under pressure to permit early option exercise. It is common for smaller companies to restrict the exercise of options to immediately before a sale /etc .
Permitting early exercise can increase the running costs and stress of operating a share scheme for a smaller company as well as causing cashflow headaches when there are employee leavers.
Tailor the EMI scheme to do what you want
The new two speed system will put small companies under pressure to permit early option exercise. It is common for smaller companies to restrict the exercise of options to immediately before a sale /etc .
Permitting early exercise can increase the running costs and stress of operating a share scheme for a smaller company as well as causing cashflow headaches when there are employee leavers.
Restrictions on exercise are usually because of a fear of dilution. In my experience, that's more of an emotional issue than a real one. EMI shareholdings needn't dilute control in any meaningful sense and dividends can be paid separately. If it's properly planned, there's rarely a reason why early exercise should be a problem, unless the company doesn't really want any employee participation.
The potential cash flow headache can also be addressed by writing in suitable good leaver/bad leaver provisions. If employees leave, there's no requirement that they be paid out any more than they put in, which might only be the nominal value of their shares. If they don't like that, too bad. They should be grateful to be given the opportunity; it's up to them if they choose to pass it up by leaving early.
The beauty of EMI schemes is their flexibility. If companies try to set them up on the cheap and without any real thought, they'll probably get a scheme that causes them problems. If they treat it as the investment it should be and work with their advisers (which requires a bit of strategic thinking but doesn't cost much more), they'll get a scheme tailored to their commercial needs and providing real incentives to key staff - which is exactly what EMI was intended to do!