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Many small businesses are turning towards Enterprise Management Incentive (EMI) schemes as a way to incentivise key employees by granting options to acquire shares.
EMI Schemes give selected employees the right to buy company shares in the future at a fixed price through a share option. This helps the company to retain key employees by rewarding them for their hard work and dedication. As the shares are at a fixed price, employees could stand to make a significant capital gain when they choose to sell the shares.
Tailor-made agreements allow businesses to clarify which employees are eligible for the scheme, how many options they would like to grant and when these options can become shares. Businesses can also protect themselves by making it a condition of the scheme that when an employee leaves the company they automatically lose any options or shares they hold.
There are many tax benefits to the schemes, especially for the employee. These include the reduced rate of capital gains tax or lack of income tax and National Insurance payable on the value of the shares or options. The company can also deduct the cost and setting up of the scheme against Corporation Tax, allowing schemes to be set up cheaply.
Only certain companies can qualify for EMI Schemes – businesses providing excluded activities will not be able to participate. If your business does not qualify, or if EMI Schemes do not suit the business, there are plenty of other options available.