Introduction
This article sets out the conditions an employee has to meet to qualify for an EMI. We suggest you read our article on the introduction to EMI Share Schemes first. Links can be found at the end of this article.
To qualify to be part of an EMI share scheme, an employee must meet conditions based on:
- their employment status
- their commitment of working time; and
- no material interest.
We discuss each in turn.
Employment
An individuals must be an employee of the company whose shares are the subject of the options, or, in the case of a group, employees of any qualifying subsidiary of that company in order to be eligible for EMI options.
The term employment includes:
- any employment under a contract of service
- any employment under a contract of apprenticeship, and
- any service under the Crown.
Directors are employees of a company. As long as they meet the criteria they too, qualify for EMI.
Commitment of working time
To be eligible, employees must spend:
- at least 25 hours each week (the 25 hours requirement), or
- if less, 75% of their working time (the 75% requirement)
working as an employee for the company or for a qualifying subsidiary.
When calculating whether an employee meets the 75% requirement, do take into account their total working time including all remunerative work. This includes employment and any self employment, for example, as a consultant.
Example
Sam works as an employee of the EMI company for 20 hours a week so she does not meet the 25 hours requirement. She also works as a self-employed engineer for 10 hours per week. She does no other paid work. Her total working time amounts to 30 hours a week. Only 66% of her working time is for the EMI company, so she will not qualify for the grant of an EMI option.
In calculating the total working time, any time on sick leave, annual leave, maternity, paternity or parental leave needs to be taken into account.
If employees do not work as much time as they had planned to do and this brings them below the commitment of 25 hours each week, or 75% of their working time, they are disqualified from holding an EMI option.
No material interest
An employee is not eligible if he has a material interest in the company whose shares are under option, or, if that company is a parent company, in any group company. A material interest is either
- beneficial ownership of, or the ability to control directly or indirectly, more than 30% of the ordinary share capital of the company, or
- where the company is a close company, possession of or entitlement to acquire rights that would give 30% of the assets, if the company were to be wound up, and make them available for distribution among the participators.
An employee has a material interest if:
- he alone has a material interest in the company
- he, together with his ‘associates’, has a material interest in the company
- any associate of his has a material interest in the company.
Meaning ‘of associate’:
- relatives of the employee, that is a spouse, parent, grandparent, child, grandchild or remoter relative in the direct line but not siblings
- the trustees of any settlement in relation to which the employee or any relative is or was a settlor,
- if the company has shares in trust, the trustees of any settlement where the employee has an interest
- the personal representatives of a deceased person, where company shares are part of the estate and the employee has an interest in the estate.
Acquiring a material interest greater than 30% after the grant of an EMI option
If an employee gains a material interest of more than 30% only after he has been granted the EMI option, it will not affect the existing EMI option. However, he will not be eligible for the grant of any more EMI options.
Shares and ‘material interests’
All shares over which the employee has an option have to be taken into account, except shares that are under an EMI option. |
