Enterprise Investment Schemes (EIS) were introduced in 1994 to encourage investment in small businesses. The aim was to foster economic growth and innovation by supporting entrepreneurial business ventures. Tax reliefs were applied to compensate for some of the risks and attract investment. On 6 April 2012 a number of changes to EIS were introduced in respect of the qualifying criteria.
What Sort of Company Qualifies?
The following criteria must be met for a company to qualify under the Enterprise Investment Scheme system. Certain of these criteria must be met for the entire three year investment period:
- The company must be unquoted at the time the shares are issued which means:
- It cannot be quoted on any recognised stock exchange such as the London Stock Exchange
- The Alternative Investment Market and PLUS Market are not considered recognised stock exchanges for the purposes of the EIS regulations so companies listed on theses exchanges may raise money through EIS
- A company may become quoted after the shares have been issued without investors losing their tax reliefs if the arrangements to become listed were not in place at the time the shares were issued
- The company must not control another company unless that company is a qualifying subsidiary. This also means that arrangements must not have been in place for this to become the case at the time the shares were issued
- The company may have subsidiaries which must all be qualifying subsidiaries; this requirement applies for the whole investment period and means:
- It owns 50 per cent of the company’s share capital an there is no control by another company
- If the subsidiary is a property management company it must be 90 per cent owned
- The company must not be controlled by another company and arrangements must not have been in place for this to subsequently become the case at the time the shares were issued. This requirement applies for the whole investment period
- The gross assets of the company must not exceed £15,000,000 before the share issue or more than £16,000,000 after the share issue
- The company must have less than 250 employees at the time of the share issue
- The company must either be a company carrying on a qualifying trade, or a parent company; if the trade is carried on by a subsidiary, it must be at least a 90 per cent subsidiary. The trade rule must be complied with for the entire investment period
Companies that qualify cannot raise more than £5,000,000 in any 12 month period.
If you have any questions about the Enterprise Investment Scheme as an investor or a business Rollingsons has experienced lawyers who can assist you (although we cannot advise on tax and accountancy matters). For more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by telephone on 0207 611 4848.
