Employee ownership trust (EOT) definition

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EMI share options—checklist to determine whether a company and its employees qualify

EMI share options—checklist to determine whether a company and its employees qualify Enterprise management incentives (EMI) options are tax-advantaged share options which a qualifying company with fewer than 250 employees can grant on a discretionary basis over shares worth up to £250,000 per individual and £3,000,000 in aggregate (in both cases the shares are valued as of the date of grant and ignoring any restrictions) and are intended for use primarily by small and growing companies. The legislation relating to EMI options sets out numerous requirements that must be met, including in relation to: • the company granting the options • the individuals being granted the options, and • the terms of the options themselves This Checklist focuses on the requirements that must be satisfied in order to gain the income tax relief provided for in Part 7, Chapter 9 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This Checklist merely provides a guide to the legislative requirements relating to a company and its employees that must...

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Funding an employee benefit trust

Funding an employee benefit trust This Practice Note covers the following issues in relation to the funding of an employee benefit trust (EBT): • practical aspects of funding an EBT • financial assistance—the background • financial assistance—the current position • relevance of financial assistance to EBTs • financial assistance—exemptions • the employees’ shares scheme exemption • consequences of non-compliance of the financial assistance provisions • tax implications for close companies which fund EBTs, and • corporation tax relief in respect of EBT funding Practical aspects of funding an EBT When an EBT is first set up, it needs to be provided with initial financing, as a trust cannot exist without initial trust assets. It is common for a nominal amount, for example £100, to be settled on the trustee in order to establish the EBT (for further details, see Practice Note: Setting up an EBT). However, after the EBT has established, other funding can be provided. This may be by way of: • voluntary contribution • loan...

Employing non-family members in a family business

Employing non-family members in a family business Family business culture Given the relatively high cost of finding and recruiting senior employees, retaining the right people with the right skill set is key to any company, but is especially important to a family business because recruitment can be harder than for their competitors. There are advantages to working for a family business; studies have shown increased levels of loyalty, job satisfaction, flexibility and job security. However, there can be disadvantages too, including lack of clarity, a perception of inequality, confused delegation and family politics. The challenge for any family business is to recruit senior managers with the right cultural fit and ensure they are incentivised to stay and build the business. It is, therefore, essential for a family business to ensure that its recruitment and induction policies recognise the unique culture and complexity of the family business concerned. Not all senior managers will work well in a family business environment and ‘cultural fit’ is likely, ultimately, to...

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Board minutes establishing EOT

Board minutes establishing EOT [insert name of Company] Company No [insert registered number of Company] (the Company) Minutes of a Meeting of the Board of Directors of the Company held at [insert time of meeting] on [insert date of meeting] Name Position Present: In attendance: Apologies for absence received from: 1 Notice and quorum 1.1 The Chair reported that due notice of the Meeting had been given, that a quorum of directors was present and the Meeting was therefore duly convened. 2 Business of the meeting 2.1 The Chair reported that the Meeting had been convened: 2.1.1 to consider and, if thought fit, establish an employee ownership trust to be called the [insert name of EOT] (the EOT) in order to acquire a majority interest in the capital of the Company and to hold this on behalf of the employees of the Company’s group 2.1.2 to appoint [insert name of Trustee] as trustee of the EOT...

EMI share options term sheet

EMI share options term sheet [INSERT NAME OF COMPANY] EMI SHARE OPtions This term sheet summarises a proposal to incentivise key employees of [insert name of company] (referred to below as the ‘Company’) by granting those employees statutory tax advantaged enterprise management incentives (EMI) share options over shares in the Company (EMI Options). All issues raised in this document are for discussion purposes and each should be considered carefully before implementation. 1 Overview The EMI scheme is a highly flexible and tax-efficient share option scheme designed specifically for small/medium-sized businesses. EMI schemes are one of the most popular of the share option schemes available to companies. EMI Options must be granted for commercial reasons in order to recruit or retain an employee in a company, and not as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax. Under the terms of the proposal, participants will be granted EMI share options with an exercise...

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By virtue of section 236J(3)(b) TCGA, if a 100% EOT sale has occurred, all group employees are ‘eligible employees’ where C is the principal member of a trading group. However, under section 170 TCGA a company cannot be the principal company of a group if it is a 75 per cent subsidiary. Where the EOT has a corporate trustee, would the corporate trustee not be the principal member of the corporate group? Who would therefore be an ‘eligible employee’ in those circumstances?

By virtue of section 236J(3)(b) TCGA, if a 100% EOT sale has occurred, all group employees are ‘eligible employees’ where C is the principal member of a trading group. However, under section 170 TCGA a company cannot be the principal company of a group if it is a 75 per cent subsidiary. Where the EOT has a corporate trustee, would the corporate trustee not be the principal member of the corporate group? Who would therefore be an ‘eligible employee’ in those circumstances? For the purposes of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), the trustees of a settlement are together treated as if they were a single person, distinct from the persons who are the trustees of the settlement from time to time (see TCGA 1992, s 69). A similar rule applies for the purposes of Income Tax Act 2007 (under section 474 of the Income Tax Act 2007 (ITA 2007)). This position is ‘unless the context otherwise requires’ and so, for example, this would not be the...

Will a contribution to an employee-ownership trust, from the company owned by the trust, constitute a distribution?

Will a contribution to an employee-ownership trust, from the company owned by the trust, constitute a distribution? Notwithstanding the tax position taken by HMRC, as a matter of company law the payment of a contribution by an employee-ownership trust (EOT)-owned company to an EOT is likely to be characterised as a distribution (assuming that the amount is not advanced to the EOT as a loan). The term distribution is given a very wide definition for the purpose of Part 23 of the Companies Act 2006 (CA 2006) to mean every description of distribution of a company’s assets to its members, whether in cash or otherwise, except: • an issue of bonus shares (whether fully paid or partly paid), and • certain reductions of share capital, redemptions of shares, share buybacks and distributions of assets to members on a winding up On the basis that none of these are relevant in the particular case, the contribution to the EOT is therefore likely to be a distribution by the company....