EMI Option Scheme Valuation Following An Investment Round

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    Jonathan Lea

    When advising on putting together an EMI option scheme a question that is often raised is whether the fact the company has raised a (large) investment round will negatively impact on having to agree a high valuation for the company in respect of an EMI option scheme at the date the options are granted?

    The valuation techniques used for EMI option schemes concentrate on the company’s trading circumstances and actual assets at the date of grant, while HMRC recognises that raising capital as an early stage company is more based on the business’s ‘hope value’ and expectations. As a very young company you are therefore more likely to be able to agree a low, even par, value at the date of grant of the options even though the company might have previously raised a large equity investment round that would otherwise value the company much higher on the basis of the subscription monies paid for the shares.

    Another point to note about EMI option scheme valuations is that companies will often grant share options to new employees each year. Therefore an updated valuation will need to be produced each time there is a grant of new options. The firm that produced the initial valuation will therefore need to charge an additional fee (less than that charged for the initial valuation) for each updated valuation and the additional HMRC paperwork required.

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