A small, employee-owned UK business had issued enterprise management incentive (“EMI”) options to employees to encourage the success of the business. The EMI rules grant tax benefits to employees on an exit event.

The buy-side advisors had identified three areas of potential weakness in the target’s compliance with the EMI rules including lack of evidence to show notifications were submitted to HMRC 92 days after the grant of the options, the EMI agreements being signed 5 days after the option lapsed and the articles containing a clause allowing existing A shareholders to take 95% of the voting rights in certain default events which could constitute ‘arrangements in place’ for the company to come under the control of another company. 

We issued a tax policy against the risk of the EMI options being regarded as “non-qualifying options” which enabled the buyer to acquire the target without risk of adverse tax consequences in respect of the insured tax risk.