Share plans and ‘material interest’
Produced in partnership with Sarah Nicholson of Squire Patton Boggs (UK) LLP
Share plans and ‘material interest’

The following Share Incentives practice note produced in partnership with Sarah Nicholson of Squire Patton Boggs (UK) LLP provides comprehensive and up to date legal information covering:

  • Share plans and ‘material interest’
  • Rationale behind the material interest test?
  • What kind of company is caught by the material interest test?
  • CSOPs
  • EMI schemes
  • When must the material interest test be applied?
  • CSOPs
  • EMI schemes
  • How much is ‘material’?
  • What interests must be counted?
  • More...

In order to be eligible for the grant of share options under either of the following tax-advantaged employee share arrangements:

  1. a company share option plan (CSOP), or

  2. an enterprise management incentives (EMI) scheme

employees must not have a ‘material interest’.

A material interest test also used to apply to the other two tax-advantaged share arrangements, the share incentive plan (SIP) and the save as you earn (SAYE) scheme (otherwise known as a Sharesave), but, in both cases, the requirement for this test was repealed by the Finance Act 2013 with effect for any awards made under these plans on or after 17 July 2013.

This Practice Note sets out the type of scenarios in which a material interest might arise and the various components of the test. Some elements of the test are different for CSOPs and EMI options, some are similar and some the same. These will be indicated in each relevant section.

Rationale behind the material interest test?

The material interest tests are contained in the EMI and CSOP legislation to avoid individuals who already hold a significant proportion of the scheme company’s (or related company’s) shares (and therefore can influence the further grant of share options to themselves) benefiting from the generous EMI and CSOP tax advantages.

What kind of company is caught by the material interest test?

CSOPs

For CSOP options, a material interest will not arise unless

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