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Start-Up Businesses: Optimising Investment

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Investor perks for start-up businesses

Whether you are a start-up business or an investor, this should be of interest to you.

Two government schemes, known as EIS and SEIS, have served to create far greater financial incentives for those considering investing into start-up companies. Understanding these could be a great way to encourage investment in your start-up business.

We’ve provided a brief summary of each below and would encourage you to explore these incentives if you are raising investment.

Seed Enterprise Investment Scheme (SEIS)

Significant benefits for investment into a qualifying SEIS business include:

1) Cash Back – The ability to reclaim up to 50% of the amount invested for shares, through relief against income tax. This means the real cost of investing in a start-up business is only 50% of what you agree to invest (up to an annual investment limit of £100,000);

2) Tax Free – Exemption from capital gains tax on a subsequent sale of the shares you originally invested in.

In order to qualify, both the company and the investor must satisfy certain conditions. Of particular note:

  • the company’s gross assets must not exceed £200,000 immediately prior to the share issue;
  • the company must be no more than 2-years-old;
  • the investor must hold the shares for a period of 3 years;
  • the investor must not hold more than 30 percent of the company’s issued share capital;
  • individual annual maximum investment limit of £100,000 (can be spread across more than one SEIS qualifying company); and
  • maximum allowable investment in any company under SEIS is £150,000.

Enterprise Investment Scheme (EIS)

Whilst not quite as attractive as the incentives under SEIS, the EIS incentive is an equally important tool for raising finance, given that it can be claimed after a company has reached the £150,000 cap of investment under SEIS.

The main reliefs for investment into a qualifying EIS business include:

1) Cash Back – relief against income tax at 30% of the lower of:

  • the purchase price paid for the investment in shares; or
  • the sum of £1 million.

2) Tax Free – Exemption from capital gains tax on a subsequent sale of the shares you originally invested in.

Many of the conditions for EIS relief are identical to those of SEIS, however notable differences include:

  • the company must have fewer than 50 full time employees;
  • the gross assets of the company must not be more than £7 million before the issue of shares or £8 million immediately afterwards; and
  • the company must not raise more than £2 million in any 12 month period from a combination of EIS, the corporate venture scheme and venture capital trusts.

We’d love to talk to you

We have a wealth of experience in guiding entrepreneurs through the process of starting new businesses, spanning from the basics of company incorporation to the delicate arrangements between you and your fellow investors. We also work closely with our bankers, accountants and other professionals to direct you towards suitable sources of funding.

If you are planning on starting a new business, have done so recently and investment is on the horizon, or are considering investment into a business, please do not hesitate to contact a member of our Corporate team.

The Corporate Team

Ran Oren – Partner (01332) 340 211 or by email at ran.oren@flintbishop.co.uk

Martyn Brierley – Associate (01332) 226 118 or by email at martyn.brierley@flintbishop.co.uk

William Bowler – Solicitor (01332) 226 189 or by email at william.bowler@flintbishop.co.uk

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