EMI Share Agreement: All You Need to Know
If you’re a startup or a growing business, you might be looking for ways to incentivize your employees. One such way is to offer them equity in the company. To do so, you need to create an EMI Share Agreement. In this article, we’ll go through everything you need to know about EMI Share Agreements, including what they are, their benefits, and how to create one.
What is an EMI Share Agreement?
The Enterprise Management Incentive (EMI) Scheme is a UK government initiative aimed at helping small and medium-sized companies attract and retain talented employees by offering them equity. An EMI Share Agreement is a formal contract between the company and the employee, which outlines the terms of the equity offer, such as the number of shares, vesting schedule, and the conditions for exercise.
Benefits of an EMI Share Agreement
1. Retaining Talent
Offering equity in the company is a great way to retain talent, as it gives employees a stake in the company`s success. This can be especially helpful in a competitive job market, where employees may be tempted to jump ship for a higher salary or better benefits.
2. Motivating Staff
Equity can also be an excellent motivator, as it aligns employees` interests with the company`s success. If the company does well, employees can see the value of their investment increase, which can be a great source of motivation.
3. Tax Benefits
EMI Share Agreements have significant tax benefits for both the company and the employee. For example, under the EMI Scheme, employees can exercise their options without having to pay income tax or National Insurance contributions. Additionally, if the shares are held for at least two years, any gains made on the shares are taxed at the lower Capital Gains Tax rate, currently 20%.
How to Create an EMI Share Agreement
Creating an EMI Share Agreement can be complex, but it is essential to get it right to ensure the agreement is legally binding and accurately reflects the terms of the equity offer. Here are some steps to follow:
1. Consult a Lawyer
Before creating an EMI Share Agreement, it`s essential to consult a lawyer with experience in this area. They can help ensure that the agreement complies with all the relevant laws and regulations.
2. Determine the Terms of the Offer
Before drafting the agreement, you need to determine the terms of the equity offer, such as the number of shares, vesting schedule, and the conditions for exercise. This should be done in consultation with legal and financial advisors.
3. Draft the Agreement
Once the terms have been determined, the agreement can be drafted. It should be written in clear, concise language and should accurately reflect the terms of the equity offer. The agreement should also include provisions for what happens if the employee leaves the company, such as how long they can retain their shares and how they can be sold.
4. Sign the Agreement
Once the agreement has been drafted, it should be signed by both the company and the employee. This makes the agreement legally binding and ensures that both parties are aware of the terms of the equity offer.
An EMI Share Agreement is an excellent tool for incentivizing and retaining employees. It offers significant tax benefits for both the company and the employee and aligns everyone`s interests with the company`s success. If you`re looking to create an EMI Share Agreement, it`s essential to consult legal and financial advisors to ensure that the agreement is legally binding and accurately reflects the terms of the equity offer.