EMI schemes: How to set up an EMI share plan

5 April 2023
Scarlett Pierce

Is the UK startup ecosystem a world leader? The figures certainly suggest so.

According to the Office of National Statistics, there are more than 12,000 fast-growth startups in Britain. Dealroom ranks the UK third globally for VC investment, after the US and China, with 70% of that investment taking place in London.

These impressive stats aren’t a happy coincidence, however. They’re the result of deliberate efforts to make the UK an attractive place to do business. One of the UK Government’s best-known and most successful initiatives is the enterprise management incentive, or EMI.

What is an EMI scheme?

EMI schemes provide a tax-efficient means of rewarding, incentivizing and retaining talented employees. To reap the benefits of EMI, a company must set up its own EMI share plan. But how exactly is it done? In this article, we’ll explain the ins and outs of EMI schemes and share plans, from the documentation required to the process of legal adoption.

What is an EMI share plan?

An EMI share plan is your framework for granting share options to employees through the EMI scheme. It defines the rules, requirements and limitations of your EMI share scheme, and is unique to your business. Your EMI share plan should specify:

You must prepare share option plan rules that capture the specifics of your EMI scheme, and include a definition for every term used across your plan documents.

Although you can customize your share plan, there are certain conditions that must be met in order to qualify for EMI. Your company must:

  • Employ fewer than 250 people full-time

  • Have £30M or less in gross assets

  • Have allocated less than £3M worth of EMI shares

  • Operate in a qualifying trade

Do I need an EMI share plan?

Put simply, if you want to grant EMI options, you need an EMI share plan. The EMI scheme is widely regarded as the best share scheme in the UK, with benefits to both employers and employees.

Benefits of EMI schemes for employers:

  • Corporation tax relief on the shares at the point of exercise

  • No employer’s National Insurance Contributions (NIC)

  • No tax upon granting

Benefits of EMI schemes for employees:

  • Reduced Capital Gains Tax (10% instead of 20%) on the growth in the value of shares

  • Lower tax costs than cash or other non-EMI arrangements

  • No income tax (up to 45%) and no employees’ NIC upon the grant or exercise of the options

The best way to secure these benefits is to set up your EMI scheme with the help of qualified share plan providers. Skipping any important steps – whether that’s outlining your plan rules or getting investor consent for creating an option pool – puts you and any share plan participants at risk, as unapproved options may become a tax burden.

What’s more, without a watertight EMI share plan, there’s a possibility the terms will vary for each grant, which may put some grantholders at an unfair advantage or disadvantage to others.

When should I set up an EMI share plan?

You must set up your EMI share plan completely before granting any EMI options to employees. This includes getting the plan legally adopted by your board and shareholders as necessary.

It’s important to note that share plan setup isn’t the only dependency in granting options: you’ll also need a company valuation approved by HMRC. Approval from HMRC is known as pre-clearance and guarantees that the share price stated in the option grant will be upheld by HMRC in future, upon exercise or sale of the shares.

To speed up the overall process, perform a company valuation at the same time as you set up your EMI share plan.

What do I need for an EMI share plan?

Once you’ve decided how to configure your share plan, you’ll need to lay out your plan in a number of formal documents. At a minimum, these should include:

  • Share option plan rules – the blueprint for your share scheme

  • Notice of grant – a template that details strike price, exercise rules, vesting schedule and more for each option issuance

  • Notice of exercise – a template that confirms the exercise of options into shares, adapted for each exercise

You may also need:

  • Custom consent – explicit consent from investors, directors or founders to execute the share option plan

  • Shareholder resolution – permission from shareholders to subdivide existing shares and allocate newly formed shares to an incentive pool

How do I legally adopt an EMI share plan?

To finalize your EMI share plan, it needs to be legally adopted by your board. Board adoption can vary from company to company, and the level of consent needed from investors will be determined by your existing shareholder agreement.

Typically, you’ll need to:

  • Convene your board to discuss the proposal

  • Take minutes at the board meeting

  • Pass a shareholder resolution

  • Secure investor consent for the option pool

How long does it take to set up an EMI share plan?

How long it takes to set up an EMI share plan depends on many factors, including who you’re working with and how responsive those stakeholders are. Whether you’re working with on-call lawyers, whether your board meets and communicates regularly, whether you know exactly how you want to configure your plan: all of these factors will affect your timeline.

Carta is an efficient provider of EMI share plans because we take care of the time-consuming document development in advance. With Carta, you’ll save time by using our customizable templates instead of designing documents from scratch. Sign up to Carta today and you’ll be ready to issue options within 6-8 weeks.

Do I need to notify HMRC of my EMI share plan?

When setting up a new EMI share plan, you need to register the plan with HMRC. You can do this through the  HMRC Online Services portal.

Currently, you must notify HMRC of any EMI option issuances within 92 days of granting. However, the UK Government recently announced a change to this rule. For EMI options granted on or after 6 April 2024, you’ll simply need to include the grant notification in your EMI annual return and file it with HMRC by 6 July.

EMI share plans with Carta

If you’re ready to set up your EMI share plan, Carta can help. Sign up to Carta and you’ll be able to design your EMI scheme, prepare the documentation and begin issuing equity to your employees in a matter of weeks, all on a single platform.

Phase one: prepare

Request an EMI share plan and you’ll be connected with a Carta analyst. They’ll guide you through the necessary preparations, helping you to ensure:

  • Your company qualifies for EMI

  • Equity is available to issue

  • You’ve established the rules of your scheme

Carta will then generate the required documents. These will be customized to the rules of your EMI scheme, within certain parameters. Our templates follow market standards, and have been developed by a team of legal experts.

Phase two: adopt

To complete the process, you must legally adopt the plan as a company. Carta's involvement in this stage is minimal, but your analyst can help you understand what’s needed and provide templated documents for this purpose.

Phase three: publish

Once the plan’s been adopted, it’s time to configure your account. Your dedicated Carta analyst will generate your share plan on the platform and adjust the settings to match your scheme rules. With that complete, you’re ready to grant equity to your employees. Your analyst will walk you through the process if needed.

Explore Carta UK EMI share plans now

© 2023 eShares, Inc. dba Carta, Inc. All rights reserved. Reproduction prohibited.