What an EMI scheme actually is
An EMI scheme gives chosen employees the option to buy shares later, at a price fixed now. They pay nothing today. If the business grows and gets sold, they buy at the old price and sell at the new one, and the gap is theirs. If it does not grow, the option is worth nothing and nobody is out of pocket.
The reason people bother with EMI specifically rather than just handing out options is the tax treatment, which is materially better than the alternatives for both sides. That is also why HMRC attaches conditions to it - a list of things the company, the employee and the option itself all have to satisfy.
The two questions this check separates. Whether options are the right shape for what you want, and whether you qualify. They are independent. Plenty of companies qualify comfortably and should still do something else, because what they actually wanted was for the team to hold shares now, or to keep the equity and pay cash instead. And plenty of companies want exactly what EMI does and fall at one of the conditions.
The conditions, in plain English
These are the ones which knock people out in practice. There are more, and the detail matters, but if you clear these you are usually in the conversation.
- Fewer than 250 full-time equivalent employees. Counted across the group, not just the company granting the options.
- Gross assets of £30 million or less. Again group-wide. Asset-heavy businesses hit this sooner than they expect.
- Independence. The company must not be controlled by another company. A subsidiary cannot grant its own EMI options.
- A qualifying trade. Some activities are excluded - property development and dealing in land, banking and financial services, and legal and accountancy services among them. Worth checking early, because it is the condition which cannot be worked around.
- Employees, working enough hours. Options go to employees who spend at least 25 hours a week, or 75% of their working time, on the business. Contractors and non-executives cannot hold EMI options.
- No material interest. Someone already holding roughly 30% or more of the company cannot be granted EMI options.
- Limits. There is a cap on the value of unexercised options an individual can hold, and a separate cap across the company. Growing businesses reach the individual cap surprisingly often.
What the three results mean
The check does not score you. It lands on one of three positions, chosen by the most serious thing it finds rather than by counting - because a single hard condition failing matters more than three soft concerns.
EMI looks like the right shape for this.
Nothing here rules you out, and what you described is what EMI is for - upside for employees, paid on an exit, with the tax treatment that makes it worth the paperwork. The next step is a valuation and the paperwork, not more deliberation.
EMI could work, with a few things settled first.
No hard condition looks broken, but something about what you want does not sit neatly with what options do. That is usually solvable, and occasionally it means a different scheme fits better. Worth half an hour before anyone spends money.
EMI is probably not the one.
Either a condition looks like it fails, or what you want is not what an option does. That is not the end of it - there are four or five other ways to give people a share of the upside, and one of them usually fits. The findings below say which.
What the check looks for
In the order they matter. The first five are conditions - if one of these fails, nothing else in the list is worth discussing. The rest are questions about what you actually want, and the last few are pointers rather than problems.
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Too many employees
EMI is for companies with fewer than 250 full-time equivalent employees, counted across the group. Above that the scheme is closed to you, however well everything else fits. A CSOP has no headcount limit and is the usual next stop.
EMI vs CSOP: which fits -
Gross assets above the cap
The limit is £30 million across the group. Asset-heavy businesses reach it earlier than founders expect, and the test is on gross assets rather than net, so borrowing against them does not help.
EMI vs CSOP: which fits -
The company is a subsidiary
An EMI company cannot be controlled by another company. If yours is a subsidiary, options would normally be granted by the parent over parent shares instead - which changes what your employees actually end up owning, and is worth thinking about before you promise anyone anything.
The EMI guide -
The trade may be excluded
Property development and dealing in land, banking and financial services, and legal and accountancy services are all on the excluded activities list. This is the condition with no workaround, so it is the one to check first rather than last. If a substantial part of what you do falls inside it, EMI is out and unapproved options or a growth share class are the realistic routes.
Phantom shares and unapproved options -
They are not employees
EMI options go to employees only. Contractors, consultants and non-executive directors cannot hold them, whatever they contribute. For those people, unapproved options or a phantom arrangement do the job without pretending to be EMI.
Phantom shares and unapproved options -
You do not want to give away equity
Then an option scheme is the wrong instrument, because the whole mechanism ends in someone owning shares. What you want is a cash arrangement which tracks the value of the business - a phantom scheme - so people share the upside and the share register never changes.
Phantom shares and unapproved options -
You want them holding shares now, not options
EMI grants a right to buy later. If you want people on the share register today, with votes or dividends, a separate class of growth shares usually fits better - they own something real from day one, and only participate in value above a hurdle you set.
Growth shares explained -
Somebody already owns too much
An employee holding roughly 30% or more of the company cannot be granted EMI options. This catches founder-employees more often than anyone else, and it means the person you most want to reward is sometimes the one person you cannot reward this way.
The EMI guide -
Some of them work too few hours
The requirement is 25 hours a week, or 75% of working time if that is less. Part-time employees below that threshold cannot hold EMI options, which usually means a two-track scheme - EMI for those who qualify and something unapproved for those who do not.
Employee share schemes explained -
No exit on the horizon
Options pay out when shares are sold. In a business built to keep rather than sell, they can sit unexercised for years and people quietly stop counting them as reward. Either build in another exercise event, or look at something which pays out along the way - growth shares carrying dividends, or an employee ownership trust.
Employee ownership trusts explained -
The answers you were not sure about
On at least one question the honest answer was that you did not know - headcount, gross assets, the trade, or who owns what. Those are the facts the whole scheme rests on, and all of them are knowable from your accounts and your share register in an afternoon. Worth doing before spending anything on paperwork.
The EMI guide -
Sharing the proceeds on a sale
EMI does this well, and it is worth knowing it is not the only route. If the intention is for the team to end up owning the business rather than being paid out by a buyer, an employee ownership trust does something quite different and carries its own tax treatment. Worth a look before you commit to options.
Employee ownership trusts explained -
Getting value out for yourself
EMI will not do this - it is a scheme for rewarding employees, and a shareholder with a large stake is specifically excluded from holding options. What you are describing is an exit question rather than a share scheme question, and the routes are a trade sale, a buyout, or an employee ownership trust.
How to sell a business -
Keeping control of who ends up a shareholder
Entirely doable, and it is done in the option agreement and the articles rather than in the scheme itself. Good leaver and bad leaver provisions decide what happens when someone goes, and they are the clause worth spending time on - the difference between a departing employee keeping their options and losing them is written there.
Good leaver, bad leaver
Frequently asked questions
Do I need an EMI scheme?
Need is the wrong test - nobody needs one. It is worth having when you want employees to share in the growth of the business, you expect a sale at some point, and you would rather give away a slice of future value than more cash now. If any of those three is missing, something else usually fits better.
Which companies qualify for an EMI scheme?
Broadly: independent companies with fewer than 250 full-time equivalent employees, gross assets of £30 million or less, a permanent establishment in the UK, and a trade which is not on the excluded activities list. The company must not be controlled by another company. Each of those has detail behind it, and the excluded trades are the condition most likely to catch people out.
What is the alternative if we do not qualify for EMI?
There are several, and which one depends on why you failed. A CSOP if you are too large. Growth shares if you want people owning something now, or if the trade is excluded. Unapproved options for contractors and non-executives who cannot hold EMI. A phantom scheme if you want to share value without touching the share register at all.
Can contractors or non-executive directors get EMI options?
No. EMI is restricted to employees who commit at least 25 hours a week, or 75% of their working time, to the company. Contractors, consultants and non-executives fall outside it however central they are to the business, so they are usually looked after with unapproved options instead.
How long does it take to set up an EMI scheme?
The paperwork is a matter of weeks rather than months. The part which sets the pace is agreeing a valuation, since the exercise price rests on it, and that is a conversation with HMRC rather than something you decide yourself. Starting the valuation early is the single most useful thing you can do to compress the timetable.
If EMI looks like the answer
Silva sets up EMI schemes as a fixed-fee package - the scheme rules, the option agreements, the board and shareholder paperwork, and the HMRC notifications. Price agreed before the work starts. Where the tax treatment needs confirming, we work alongside your accountant rather than guessing at it.