Q&As

Can a company who receives licences and royalties fees operate an EMI scheme?

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Published on LexisPSL on 17/10/2017

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • Can a company who receives licences and royalties fees operate an EMI scheme?

The enterprise management incentive (EMI) regime is prescriptive and sets out numerous requirements that the company must meet at the time the options are granted. For the purposes of this question, it assumes the EMI company is a parent company.

For a company to qualify for EMI purposes, it has to satisfy the following tests at the time of grant of the options:

  1. independence test

  2. qualifying subsidiary test

  3. gross assets test

  4. number of employees test, and

  5. trading activities test

This Q&A assumes that all the other tests have been satisfied and examines whether the trading activities test can be satisfied where a company receives royalties and licence fees.

Broadly, for a company to satisfy the trading activities test, it must exist, wholly for the purpose of carrying on (or be preparing to carry on (and actually begin the qualifying trade within two years of the options being granted)) one or more qualifying trades on a commercial, profit-making basis, which does not (either wholly or to any substantial extent), include certain excluded trading activities. The qualifying compa

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