Harper James advises UK start-ups, scale-ups and established companies on the corporate and shareholder issues that arise when raising investment under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). The reliefs can make an investment more attractive, but compliance depends on the company, the shares, the use of funds and the investor relationship.
SEIS is designed for younger, smaller companies. A qualifying company generally has fewer than 25 employees, gross assets of no more than £350,000 and has traded for no more than three years before issuing the shares. It can raise up to £250,000 under SEIS. EIS applies to larger qualifying companies, subject to limits including gross assets of £30 million before investment and £35 million afterwards, with a standard trading age limit of seven years. Knowledge-intensive companies have different thresholds. Current investor relief rates are generally 50% for SEIS and 30% for EIS, subject to the statutory conditions. Founders should review the current EIS and SEIS framework before agreeing investment terms.
The shares must usually be newly issued ordinary shares, fully paid in cash and carrying genuine risk. Rights to redeem the shares, protected exits, preferential returns or arrangements that reduce the investor's exposure can affect eligibility. The company must also carry on a qualifying trade, use the funds for that trade within the required period and satisfy the risk-to-capital condition. An advance assurance application to HMRC is often useful before fundraising, but it is not a guarantee that the eventual share issue qualifies. Keep the application consistent with the final term sheet, subscription agreement, articles of association and cap table.
After the investment, maintain a clear evidence file covering the share issue, bank receipts, board approvals, investor certificates, business plan, use of funds and trading activity. The company submits an EIS1 or SEIS1 compliance statement to HMRC once the relevant conditions are met. After HMRC accepts it, the company issues EIS3 or SEIS3 certificates to investors. Companies House filings, statutory registers and share certificates must match the investment documents. Record any changes to the trade, group structure, share rights, use of funds or investor arrangements because they can affect continuing relief.
EIS and SEIS compliance continues after completion. A company should monitor the qualifying trade, employee numbers, gross assets, use of investment funds and any proposed share transfer, buyback, restructuring or acquisition. Investor communications should avoid promising tax relief or a particular exit outcome. A practical timetable assigns responsibility for the HMRC submission, company secretarial records, financial evidence and investor updates. Harper James can coordinate the subscription documents, shareholder approvals, cap table, advance assurance material and post-investment corporate compliance work under an appropriate Engage, Enable or Extend arrangement.