Enterprise Management Incentives: An overview

3 mins

Posted on 04 Aug 2023

Enterprise Management Incentives: An overview

In the realm of business, motivation is the fuel that propels employees and leaders towards success. Enterprises worldwide seek innovative ways to cultivate this drive, and one method of achieving this is through Enterprise Management Incentives (EMIs), a unique scheme that empowers companies to reward and retain their key talent effectively, encouraging growth and fostering a culture of success.

What are EMIs?

Enterprise Management Incentives, known as EMIs, are a government-backed share option scheme introduced in 2000. They are primarily designed to aid small and medium-sized enterprises (SMEs) in attracting, motivating, and retaining talented employees.

They provide employees with the opportunity to acquire company shares at a pre-determined price in the future, thereby aligning their interests with the long-term growth and success of the company.

How does an EMI work?

An EMI operates on a relatively simple principle. Employers can grant eligible employees the option to purchase shares in the company at a specific price, and the employee can exercise these options once specified criteria are satisfied. Such criteria can be time or performance based, and sometimes specify that the EMI is only exercisable on an exit.

The most significant advantage of EMI is the favourable tax treatment it offers to both the company and its employees. Under the scheme, employees can avail themselves of substantial tax benefits, as they may be subject to lower tax rates on the gains made from selling the shares.

For the company, the costs of implementing an EMI scheme may be tax-deductible, enhancing its appeal as a cost-effective incentive plan.

Eligibility for EMI

Not all companies or employees can participate in the EMI scheme. To qualify, a company must be an independent trading company with gross assets not exceeding £30 million, and cannot be controlled by another company. It must also have fewer than 250 full-time equivalent employees.

As for the employees, those eligible to receive EMI options must work for the company for at least 25 hours a week or, if less, 75% of their working time. Furthermore, they must not have more than a 30% stake in the company's share capital, directly or indirectly.

Benefits of EMIs for Businesses

EMIs bring a multitude of benefits to businesses, making them an attractive tool for talent management:

  • Attracting and Retaining Talent: EMIs allow SMEs to compete with larger corporations in attracting top talent by offering them a stake in the company's future success.
  • Improved Employee Motivation: Granting employees a vested interest in the company's growth motivates them to perform better, contributing to increased productivity and creativity.
  • Tax Advantages: The scheme offers tax-efficient rewards for employees and tax-deductible costs for the company, reducing the overall financial burden.
  • Long-Term Focus: EMIs foster a long-term perspective among employees, aligning their goals with the company's vision and encouraging loyalty.
  • Exit Strategy: EMIs can be a useful tool for business owners seeking an exit plan, as it allows employees to buy the company's shares when the time is right.

Why businesses should consider EMIs

EMIs have emerged as a powerful tool for fostering growth and success in businesses. By granting employees a tangible stake in the company's future, an EMI aligns their interests with the company's long-term objectives, boosting motivation and productivity.

With their tax advantages and ability to attract and retain top talent, EMIs continue to be a key strategy for businesses looking to unlock their full potential in the competitive landscape of the modern economy.

For further information on how we can support your business with EMIs, please visit our Share Schemes, Options & Incentives page, or contact a member of our Corporate team.

Thomas Clark

Thomas is an experienced corporate lawyer who advises clients on matters including business sales and purchases, shareholder agreements and articles of association, reorganisations, preparation for sale, and employee incentives.

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The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.

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