2.1 The kind of company which
can use the Scheme to raise money
- Must be an unquoted company at the time the shares are issued. That means
it cannot be listed on the London Stock Exchange or any other recognised
stock exchange. It can subsequently become a quoted company without the
investors losing relief, but only if there were no arrangements for it to
become quoted in existence when the shares were issued. For the Enterprise
Investment Scheme (EIS) rules the Alternative Investment Market (AIM) and
the PLUS Quoted and PLUS Traded Markets are not considered to be recognised
exchanges, so a company listed on those markets can raise money under the
EIS if it satisfies all the other conditions.
- Must not be controlled by another company (or another company and any
person connected with that company). Nor must there be any arrangements
in existence for it to be controlled by another company at the time the
shares are issued. However, where a company needs, for commercial reasons,
to put a new holding company above itself and:
- all the shares in the old company are exchanged for shares of the same
kind in the new holding company
- various other conditions, set out at VCM15200,
are met
The tax relief applicable to the old shares is effectively transferred to
the new shares.
- May have subsidiaries, but if it does they must all be qualifying subsidiaries
ie, the company has more than 50 per cent of the ordinary share capital
of the subsidiary, and it is not controlled (by other means) by another
company. (If the EIS company has a property management subsidiary that must
be at least a 90 per cent subsidiary).
- Must be a 'small company'. The measure of whether a company is 'small'
is the Gross Assets Test. The Gross Assets of the company – or of
the whole group if it is the parent of a group – cannot exceed £7
million immediately before any share issue and £8 million immediately
after that issue. VCM15100 and Statement of Practice 2/06 explain how assets
are valued for the purpose of this test.
- Must have fewer than 50 full-time employees (or their equivalents) at
the time the shares are issued.
- Can be either a company carrying on the qualifying trade, or the parent
company of a trading group. The trade can be carried on either by the company
issuing the shares or a subsidiary, but if it is carried on by a subsidiary,
it must be at least a 90 per cent subsidiary. Note: the rule is worded so
as to prevent any party other than the company issuing the shares or its
90 per cent subsidiary, from carrying on the trade for which the monies
have been raised. That means that if the trade is being carried on in partnership
then the company will not qualify. See VCM12100.
The rules regarding not being controlled by another company, qualifying subsidiaries
and the company carrying on the trade must be met throughout the period outlined
in Part 1. If they are not, then the investors will lose their reliefs.
