VCM20020 - Enterprise investment scheme (EIS): General: Qualifying business activities

ICTA/S289 (1)(b) - (c) & (2); ITA/S174; ITA/S175 & ITA/S179; ITA/S183

The shares must be issued in order to raise money for the purpose of a qualifying business activity, and the money must be employed for the purpose of that activity. If the issue does raise money, and that money is in due course employed for that purpose, it can normally be accepted that this rule is satisfied.

The term qualifying business activity covers the following:

• carrying on a qualifying trade (see VCM17000 onwards),
• preparing (see VCM20030) to carry on a qualifying trade which the company begins to carry on within two years after the issue of the shares,
• carrying on research and development (see VCM20025), which must either be carried on when the shares are issued or be commenced immediately afterwards, and which the company intends should benefit or lead to a qualifying trade,

The activity may be carried on either by the company issuing the shares or by a company which is, at the date of issue of the shares, a subsidiary of that company. The legislation disqualifies any trade which is being carried on by any person other than those companies. That means that, where the trade is carried on by a partnership whose partners include persons other than the issuing company or its 90% qualifying subsidiary, the trade is not a qualifying one.