How to set up an EMI scheme

Content Team December 8, 2021 mins read

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Global Shares’ Content Team comprises a dynamic and talented team of writers and experienced professionals who strive to deliver useful equity insights and simplify complex equity information, all with the aim of helping you to better understand equity management.

How to set up an EMI scheme

The Enterprise Management Incentive (EMI) administrative burden is two-fold – first, there are the steps you must take when setting up the scheme, and then the ongoing management work that must be done once it is up and running.  

 We go through everything you need to know about an EMI scheme in our complete guide

These two elements involve different sets of administrative steps, but they share one common non-negotiable requirement – attention to detail. There are many boxes to tick, many things to get right, and ample opportunities to make mistakes… unless you’ve been around the track before and know what you’re doing. That’s where Global Shares comes in. Our experts are on hand to guide you on the journey and carry the load where necessary. But first things first – What is actually involved in successfully setting up and then managing an EMI scheme?  

Creating the EMI scheme  

Once you establish your company’s eligibility and that of the employees you want to include in the scheme, you can then proceed with designing your EMI. Here, you must ensure that what you are proposing ticks the necessary HMRC compliance boxes and also will be compatible with the relevant legal obligations. Oversights and errors can cause headaches down the line, particularly if issues around compliance emerge when employees exercise their options and look to sell shares. 

During this stage of the process, you will need to ask yourself several questions about the running of the scheme. The answers to those questions will go some way towards dictating the key features of your EMI, and will also have implications for your admin workload, with information needing to be monitored and updated at regular intervals. Among the questions you will ask are:  

  • How large will the employee option pool be?  
  • How long after the grant award and under what circumstances will participants be allowed to exercise their options?  
  • Are you offering exercisable options, exit-based options, or a combination of both?  
  • What procedures are you going to put in place to deal with participants leaving the company during the life of the scheme? 
  • How will you distinguish between ‘good leavers’ and ‘bad leavers’?  

Filing for HMRC valuation 

When you have designed your scheme, you then make formal contact with HMRC, for the purpose of receiving a valuation for your company. This will require you to get a valuation report carried out, which you can do internally or else consult with whatever outside experts you are working with. However it is done, the final report will include two values – Unrestricted Market Value (UMV) and Actual Market Value (AMV). You will then submit that information to HMRC, along with the required VAL231 online form.  

You need to formally submit your company valuation to the HMRC.

Authorizing the share pool  

Once HMRC assigns a value to your business (valid for 90 days), you can then look to authorize the share pool and secure all required permissions. Admin-related points that need to be considered here include the overall size of the share pool, how many options to issue to each participant and being clear on the share dilution implications of creating new shares.  

Among the other relevant points the board will examine at this juncture and which must be monitored on an ongoing basis are how participants will be able to convert their options into shares (time-related, performance-related, or exit-only?) and the specifics of the vesting schedule (exit-based or will options become exercisable in tranches over time?).  

Registering EMI Scheme with HMRC 

By the time you authorize the share pool, you will know who the scheme participants will be, the size of the share pool, the number of options earmarked for each individual, over what period of time those options will be granted, and the rules around vesting. You will then make the first grant of options, and at that point, you will move on to the final admin-related step in setting up an EMI – registering the scheme with HMRC.   

The first point to stress here is that you will have 92 days to complete the registration process, from the moment that the first options linked with the scheme are granted. That might seem like a lot of time, but there are multiple steps involved and you may need to ask questions and wait for answers along the way, so it is important to guard against complacency. The general rule of thumb is to give yourself at least two weeks to complete the necessary work.  

The first step is to go to the HMRC website and enter all required details. This is a multi-step process and will require you to, for example, specify the scheme you wish to register, name your scheme, and sign a declaration that all information provided is accurate.  

Once you receive an official response and scheme reference number, you will then notify HMRC via an online portal about whatever individual grants are made under the scheme.  

HMRC rules insist that you submit an annual return for every registered scheme, even if no reportable events take place during a given year.  

Ongoing admin 

Once you’ve communicated the benefits of the EMI to your employees and it’s successfully up and running, you will then need to perform several ongoing admin-related duties. You will have to add new recipients and remove leavers, as required, while also updating the cap table over time to reflect whatever options have been issued.  

You will also need to inform HMRC of any changes during the life of the scheme, such as employees leaving, new option grants, or a company exit (a buyout or other ownership change).  

How Global Shares can help

As should be clear by this point, attempting to setting up and managing your EMI scheme on your own may prove a daunting prospect, both in terms of the time involved and the actual work itself. By partnering with Global Shares, you can replace that anxiety with peace of mind, knowing you are in safe hands. We have the necessary expertise and experience to help you make a success of your EMI, at every step along the way, including managing the scheme once it is up and running. Talk to us today and see how we can put our knowledge to work for you.  

Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.

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