EIS stands for Enterprise Investment Scheme. The UK government introduced this scheme to enable small companies to gather funding and grow their business. Various investors help small businesses through this scheme, and in return, the government gives them tax breaks. It was a fruitful initiative by the government as it let small businesses get enough funding to grow, and the investors also get an incentive in the form of tax relief.
The investors buy the EIS shares from the companies that qualify for EIS funding, and the government gives them a tax rebate for the year in which they invested in the shares. As the big companies invest in the smaller ones, it builds the market reputation of the budding firms, giving them a fair chance to prove their worth.
Which Companies Qualify For The EIS?
Plethoras of startups launched themselves in the market on a daily basis, but not all of them are eligible for EIS. Being a government-backed scheme, the companies have to go through stringent checks before they qualify for it. Eligibility rules for the companies are as follows:-
- The value of gross assets of the company immediately before they issue shares should not exceed 15 million UK dollars. Additionally, after the issuance, it should not be more than 16 million UK dollars.
- The company should not have more than 250 full-time employees at the time the shares get issued.
- The investment or funding is for growth. Even though there is no norm to define financial difficulty, the company should not be under financial crisis to be eligible for the EIS.
- The company can use the raised funds only on businesses or trades that qualify for EIS. Keep in mind that there are business types like commodities, land deals, and more that do not certify to be a part of the scheme. Hence, to launch the EIS shares, the company should fall under the list of trades verified by the investment scheme.
Every company should follow these rules as the government bodies check them thoroughly during the advance assurance review. It is only after the approval of HMRC that the company can release its shares in the market. To ensure that your business qualifies for the same, make sure you fulfil the pre-requisites, and there is nothing that the government bodies can challenge during the verification process.
Once you get through the verification process and release your shares in the market, the investors can buy the shares and help the growing businesses. Government rewards the investors in return by giving them tax benefits. If you are also a growing business looking for funding, get in touch with a company that can help you understand and apply for the enterprise investment scheme.