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EMI Disqualifying Events

Query on share capital issue following EMI grant


We have EMI options granted to Employees and are considering accepting funding from a venture capital firm. The proposed funding would be for a minority equity stake in the business but would increase the implied valuation of the firm significantly. 

Referring back to our advisor's notes at the time the EMI options were granted I note that a disqualifying event occurs if there is any alteration to the share capital of the issuing company which affects the value of the shares under EMI options or results in a conversion of shares under option where the market value of the shares increases. 

Would VC funding therefore result in a disqualifying event? I'm not sure it's relevant but the funding amount would not cause the new implied valuation of the EMI shares to exceed the £250k EMI grant limit. 

Thanks in advance


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22nd Mar 2019 14:11

The first thing to note is that an issue of shares is not an alteration of capital. And even if it were it would be a disqualifying event only if it caused the conditions in Schedule 5 to ITEPA 2003 to no longer be met.

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25th Mar 2019 17:49

It depends on the facts. Normally a new issue of shares of a new class (say series A preferred) following an investment would not cause a disqualifying event. It would be perverse if such an event did so! It's more a matter of altering the share capital used for the EMI options. An example is where a client unwittingly converted its A and B ords into one class of simple ords. The B class had been used for the EMI. The options became ineligible because of that.

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