{"id":183683,"date":"2023-11-01T04:07:53","date_gmt":"2023-11-01T04:07:53","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=183683"},"modified":"2025-09-04T04:09:01","modified_gmt":"2025-09-04T03:09:01","slug":"emi-schemes","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/","title":{"rendered":"What are Enterprise Management Incentive (EMI) Schemes?"},"content":{"rendered":"\n<p>An employee share scheme allows a startup to offer team members with equity in the company. This can be particularly beneficial when your business has yet to raise enough capital to offer employees a competitive salary. The most commonly used share scheme is the Enterprise Management Incentive (EMI) scheme. This article unpacks EMI schemes.&nbsp;<\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/09\/06164254\/uk-startup-manual-290x410-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">UK Startup Manual<\/div>\n            <div class=\"body-text\">\n                <p>LegalVision&#8217;s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.uk\/uk-startup-manual.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">Employee Share Schemes<\/h2>\n\n\n\n<p>Most high-growth startups will operate an <a href=\"https:\/\/legalvision.co.uk\/corporations\/using-employee-share-scheme\/\">employee share scheme<\/a>. Offering team members equity in the company can help bridge the gap between the startup salary and an equivalent corporate salary. A share scheme is also a great way to ensure your employees feel like they have a real ownership stake in the business. It can also align their interests with those of the business.&nbsp;<\/p>\n\n\n\n<p>Most employee share schemes operate by giving employees the option to acquire shares in the future rather than issuing shares directly. There are also <a href=\"https:\/\/legalvision.co.uk\/corporations\/types-ess\/\">different types of share schemes<\/a>, which come with different tax advantages.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">EMI Schemes<\/h2>\n\n\n\n<p>The Enterprise Management Incentive (EMI) scheme is the most common share scheme in the UK. This is because it has the most advantages from a tax perspective. If your company and the employee qualify, EMI schemes are the most beneficial and flexible to use.&nbsp;<\/p>\n\n\n\n<p>The EMI scheme is only available to companies with a permanent establishment in the UK. This is typically a UK company, which could be either a:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>single operating company;&nbsp;<\/li>\n\n\n\n<li><a href=\"https:\/\/legalvision.co.uk\/business-structures\/holding-company\/\">holding company<\/a> of a group; or<\/li>\n\n\n\n<li><a href=\"https:\/\/legalvision.co.uk\/corporations\/subsidiary-vs-branch\/\">UK subsidiary<\/a> of an overseas company.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>The company issuing the options must be independent. This considers the shareholding of any individuals associated with the corporate shareholder.&nbsp;<\/p>\n\n\n\n<p>Additionally, your business must:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>carry business view to make profits;<\/li>\n\n\n\n<li>not engage in an excluded activity (such as dealing in property);<\/li>\n\n\n\n<li>have fewer than 250 full-time employees; and&nbsp;<\/li>\n\n\n\n<li>have gross assets of less than \u00a330 million.<\/li>\n<\/ul>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a 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Notably, the individual must:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>be a genuine employee of your business;<\/li>\n\n\n\n<li>have devoted a certain number of hours to the business; and<\/li>\n\n\n\n<li>own (or would own after exercising their options) 30% or less of the company\u2019s shares.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">HMRC Approval<\/h2>\n\n\n\n<p>If your startup company meets all of the above criteria, the first step is to obtain a valuation of the shares you will be issuing under the EMI plan. You then need HMRC to approve your valuation.<\/p>\n\n\n\n<p>The approved share price becomes the exercise price that the employees must pay when exercising their options and receiving shares. This is the price of the EMI option shares, taking into account all restrictions that attach to them. For example, do the shares contain voting rights, and can another employee take them after they leave the business? Accordingly, this will be a lower valuation than the value of the startup for the purposes of raising capital.&nbsp;<\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Once HMRC approves your valuation, you have 90 days to issue options to employees. You must use that valuation as the exercise price. Strategically, you should only value your company and submit this to HMRC when you are ready to issue options to your key employees. It is not wise to issue options on an ad hoc basis across the year.<\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">EMI Option Plan Rules<\/h2>\n\n\n\n<p>To issue options to your employees, you will need a set of EMI Option Plan Rules. These are rules setting out how the option scheme operates, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>how and when the employee can exercise their options;<\/li>\n\n\n\n<li>what happens if the employee leaves the business; and&nbsp;<\/li>\n\n\n\n<li>what happens if the company is sold.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>You will then enter into an individual Option Agreement with each employee that you are giving options to. The Option Agreement should set out:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the number of options they are getting;<\/li>\n\n\n\n<li>the exercise price; and&nbsp;<\/li>\n\n\n\n<li>any other terms that apply to their options that are not otherwise set out in the Plan Rules.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>Once you have issued an EMI option to an employee, you will need to notify HMRC and submit annual filings to HMRC.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Benefits of EMI Schemes<\/h2>\n\n\n\n<p>So, what are the advantages of EMI schemes?<\/p>\n\n\n\n<p>One benefit is that, provided the exercise price is set at the share price valuation that was approved by HMRC or higher (and this is paid by the employee when exercising their options), the employee does not pay any income tax when receiving shares on the exercise of their options. This is the case, even if those shares are worth much more than the exercise price at the time at which they exercise. The EMI rules give flexibility and allow companies to set the exercise price at a lower amount than the approved market value. However, this will result in employees having to pay income tax on the difference between the price they pay and the market value at the date the option was granted.&nbsp;<\/p>\n\n\n\n<p>Another benefit is that there are very few restrictions on when employees need to exercise their options. This allows companies flexibility on when they can permit employees to become shareholders. Some companies will allow employees to exercise options as soon as they have vested. However, it is more common for companies to have \u2018exit-only\u2019 schemes. This is where employees are only permitted to exercise immediately prior to a sale of the company. These schemes are less administratively burdensome as a company does not need to deal with exercise requests from its employees frequently. At the same time, it is also preferable for employees, as they can use their sale proceeds to pay the exercise price. <\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Typically, if an employee leaves before the company is sold, they are permitted to exercise their vested options within 90 days, provided they are a \u2018good leaver\u2019, to ensure they do not have to pay any income tax when being issued their shares.<\/p>\n<\/div>\n\n\n\n<p>A further tax win is that if an employee exercises EMI options and then sells the resulting shares, they can benefit from \u2018business asset disposal relief\u2019 (previously, \u2018entrepreneurs\u2019 relief). This is the case where an employee, amongst other criteria, holds onto options or shares for at least 2 years before selling them. This relief reduces the rate of CGT payable by higher-rate taxpayers to 10% up to a lifetime limit of \u00a31 million. If an employee holds shares that were not acquired through the exercise of EMI options, they need to hold 5% of the shares and voting power in the company to qualify for this relief.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Other Considerations<\/h2>\n\n\n\n<p>As your startup scales, there are both company limits and individual limits when issuing options that qualify for the EMI scheme. A company cannot grant more than \u00a33 million worth of EMI options, and employees cannot be issued with more than \u00a3250,000 worth of options, considering both EMI options and CSOP options.&nbsp;<\/p>\n\n\n\n<p>Notably, there are many hoops a startup needs to jump through to qualify for the EMI scheme and issue EMI qualifying options to employees. We recommend speaking to an accountant to ensure that you are obtaining the correct share price valuation to send to HMRC for approval. You will also need the assistance of a lawyer to prepare your EMI Option Plan Rules as well as the Option Agreements you will enter with each of your employees in a way that complies with the EMI legislation.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways<\/h2>\n\n\n\n<p>The most common share scheme in the UK is the Enterprise Management Incentive (EMI) scheme. The scheme is only available to companies with a permanent establishment in the UK and who satisfy the independence test. There are also group limits and eligibility requirements for employees.&nbsp;<\/p>\n\n\n\n<p>For assistance setting up an EMI scheme, our experienced <a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\">corporate lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <a href=\"https:\/\/legalvision.co.uk\/membership\">membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1756955277277\"><strong class=\"schema-faq-question\">What is an EMI scheme?<\/strong> <p class=\"schema-faq-answer\">An EMI (Enterprise Management Incentive) scheme is a type of employee share scheme commonly used by UK startups to offer equity to their employees. It provides significant tax advantages and is flexible, making it the most beneficial share scheme in the UK.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1756955287194\"><strong class=\"schema-faq-question\">Why should a startup consider an EMI scheme?<\/strong> <p class=\"schema-faq-answer\">EMI schemes help startups attract and retain talent by offering employees equity in the company. This can bridge the gap between startup salaries and corporate salaries, and align employee interests with the company&#8217;s success.<\/p> <\/div> <\/div>\n\n\n\n\n\n\n\n\n\n\n\n\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"87813618e8\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/183683\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What are Enterprise Management Incentive (EMI) Schemes?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>An employee share scheme allows a startup to offer team members with equity in the company. This can be particularly beneficial when your business has yet to raise enough capital to offer employees a competitive salary. The most commonly used share scheme is the Enterprise Management Incentive (EMI) scheme. This article unpacks EMI schemes.&nbsp; Employee<a href=\"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/\">Continue reading <span class=\"sr-only\">&#8220;What are Enterprise Management Incentive (EMI) Schemes?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13364,"featured_media":183574,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"175102,176754,176307,825,179556,176926","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28,31],"tags":[21,338,592,1535,1537],"class_list":["post-183683","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","category-startups","tag-medium-business","tag-hmrc","tag-employee-share-scheme","tag-emi-scheme","tag-enterprise-management-incentive-schemes"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What are Enterprise Management Incentive (EMI) Schemes? | LegalVision UK<\/title>\n<meta name=\"description\" content=\"The most commonly used share scheme is the Enterprise Management Incentive (EMI) scheme. 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Michaela specialises in Corporate law and has experience providing legal advice and assisting clients with business, share sale and financial transactions. She also provides advice on business structuring, restructuring, constitutional, membership and governance matters.","url":"https:\/\/legalvision.co.uk\/author\/michaelaoconnor\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/#faq-question-1756955277277","name":"What is an EMI scheme?","acceptedAnswer":{"@type":"Answer","text":"An EMI (Enterprise Management Incentive) scheme is a type of employee share scheme commonly used by UK startups to offer equity to their employees. It provides significant tax advantages and is flexible, making it the most beneficial share scheme in the UK.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/emi-schemes\/#faq-question-1756955287194","name":"Why should a startup consider an EMI scheme?","acceptedAnswer":{"@type":"Answer","text":"EMI schemes help startups attract and retain talent by offering employees equity in the company. This can bridge the gap between startup salaries and corporate salaries, and align employee interests with the company's success.","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183683","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/users\/13364"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/comments?post=183683"}],"version-history":[{"count":5,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183683\/revisions"}],"predecessor-version":[{"id":194566,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/183683\/revisions\/194566"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media\/183574"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media?parent=183683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/categories?post=183683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/tags?post=183683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}