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Test series

As I began to explain last week, the new Enterprise Management Incentives scheme is designed to be a flexible share option scheme with few administrative requirements.

Unlike with other share option schemes, the Inland Revenue does not intend to publish any model scheme rules.

The original limit on the number of employees participating in an EMI was abolished in the Finance Bill 2001. It also proposed that the maximum limit on the total value of shares under the scheme in respect of which unexercised qualifying options exist should be raised from the original £1.5m to £3m.

The option shares must be ordinary, fully paid, irredeemable shares. The option must be capable of being exercised within a period of 10 years but there is no minimum holding period. The options agreement must be in writing and specify the following:

The date on which the option is granted.

That it is granted under the terms of the EMI rules.

The number of shares that may be acquired.

The price, if any, payable.

When and how the option may be exercised.

Details of any restrictions,

That the option cannot be assigned.

A qualifying company must meet the following four tests.


The company must not be a 51 per cent subsidiary of another company or under the control of another company, or, where it is not a 51 per cent subsidiary, of another company and any other person connected with that company. Further, there must be no arrangements in existence whereby the company could become a 51 per cent subsidiary or come under the control of another company.

Qualifying subsidiary

Every subsidiary of the company must be a qualifying subsidiary. Broadly, the company or another of its subsidiaries must possess not less than 75 per cent of the issued share capital and voting power in the subsidiary.

Gross assets

The gross assets of a single company must not exceed £15m. Where there is a group, this figure is based on the consolidated value of the group&#39s assets, disregarding any rights against or shares in or securities of another company in the group.

Trading activities

The company must exist wholly for the purposes of carrying on one or more qualifying trades, disregarding any incidental purposes.

A qualifying trade is one which is carried on wholly or mainly in the UK, is conducted on a commercial basis with a view to the realisation of profits and does not consist wholly or substantially of the carrying on of excluded activities.

For these purposes, the carrying on of research and development activities from which a connected qualifying trade will be carried out will be treated as carrying on a qualifying trade.

Excluded activities follow closely the definition used in the Enterprise Investment Scheme and include:

Dealing in land, commodities or futures or in shares, securities or other financial instruments.

Dealing in goods other than in the course of an ordinary trade of wholesale or retail distribution.

Banking, insurance, money lending and similar financial activities.


Providing legal or accountancy services.

Property development.

Farming or market gardening activities.

Holding, managing or occupying woodlands or other forestry activities.

Operating or managing hotels, etc, or managing property used as a hotel, etc.

Operating or managing a nursing home, etc.

This list may be amended by Treasury Order.

I will take a further look at the details of the new Enterprise Management Incentives Scheme in my next column.


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