So you have managed to secure advance assurance from HMRC that your company is a qualifying company for the purposes of raising funding under Seed EIS and / or EIS. Congratulations!
You may now be the one of many Founders who fall into the "What now?" mode of thinking...
This perfectly understandable as the journey is just beginning for you and your company under the strict (yet often complex) requirements of the SEIS and EIS tax rules
Here we share some tips that you might like to take into account as you seek to issue shares to your business angels in return for this tax advantaged funding:
1. GET READY TO OFFER SHARES IN YOUR COMPANY TO INVESTORS
Understand your obligations to your investors. Take professional advice particularly in relation to your offer document and any shareholders agreement. It is fresh issues of shares only that qualify under SEIS & EIS. Also, remember your obligations extend for at least three years beyond the issue of the SEIS / EIS shares to your investors
2. DRAW UP A DETAILED SHARE CAPITAL TABLE (IN SPREADSHEET FORMAT)
No Founder should be without a detailed spreadsheet share cap table with each step mapped out from the Founder (subscriber) share issues and then for each round thereafter (SEIS, EIS and onwards). This allows the Founder to keep track of respective valuations, % shareholdings, notional options pools and to observe dilutions at each stage
3. SEIS FIRST, EIS AFTER (ALWAYS)
That order ONLY. So if you are planning on fundraising for both (and you have advance assurance for both) ensure that you allow at least ONE day to pass between the issue of the SEIS shares and the EIS shares thereafter
4. WATCH THE GROSS ASSETS LIMITS FOR SHARE SUBSCRIPTIONS
A ‘nice to have’ problem that many Founders would be envious of (!) but make sure that any share subscriptions from investors do not breach the ‘gross assets’ test at the time of the share issue. More likely to be a problem under SEIS with its lower £200k gross assets limit
5. DON’T LET ANY INVESTORS BREACH THE 30% LIMIT
This is where your nifty spreadsheet will come into play. Make sure that % shareholdings are shown and that no SEIS / EIS investors ever exceed 30%. Watch out for “associates” whose shareholdings will be aggregated e.g. spouses, parents, grand- parents, children, grand-children (brothers & sisters are okay)
Rather than settle for just 5 tips, we thought we would round it up to 10 and deliver it in a downloadable one-page PDF. You can access it for free by following the link below
Note that this article was originally posted at ip tax solutions