EMI Share Option Scheme: What are the key benefits?
For everything you need to know about EMI schemes read our previous blog here.
If you’re thinking of setting up an EMI share option scheme here’s a reminder of some of the benefits:
Tax advantages – EMI schemes provide a host of tax advantages for employees. There is no income tax to pay when the options are granted or when they’re exercised to buy the shares. When the employee sells the shares, they will pay only 10% CGT on any profit.
Flexibility – The only real limit is that options must be exercisable within 10 years. This means that employees can be given the right to buy their shares at any time up to the 10 year limit. Many businesses opt to use an exit only vesting arrangement which means that the employees can only buy their shares when the company is sold.
Other structures are available, such as vesting over time or on attainment of performance conditions, , rather than waiting until an exit event. We can go through the options with you.
Incentivisation and retention – The options provide a very tangible incentive for key employees to stay with the company. The prospect of a significant profit within a foreseeable period strongly encourages retention of staff, especially as most option agreements stipulate that options lapse automatically if an employee leaves.
Alignment with shareholders – It’s acknowledged that employees feel more aligned with the interests of shareholders and the board if they have a tangible interest in the company’s ownership. If all stakeholders are working towards a profitable exit, with everyone focused on building shareholder value, this is a great motivator
Psychological benefits – share options make employees feel appreciated, because options are a benefit that signify that the employee is here for the longer term. Imagine yourself as an employee and it says ‘we want you to remain with us and help grow the business, because we value your input’.
Low Risk – EMI schemes are low risk – if the employee leaves before the EMI option is exercised then the option lapses and leaves the employee with no further rights under the scheme.
The information was correct at time of publishing but may now be out of date.