By David Cammack, Managing Director, Forward Law. Last updated 16 October 2026.
Forward Law’s EMI scheme lawyers help startups and growing businesses set up EMI share option schemes that reflect how they want to reward their team.
An EMI scheme gives employees the opportunity to share in the company’s future growth, with valuable tax advantages where the qualifying conditions are met. It can be particularly useful when you want to attract and retain good people but cannot match the salaries offered by larger employers.
Our EMI scheme lawyers guide you through the decisions involved, arrange the valuation through our specialist partner and prepare the scheme documents. We agree the scope and fee before work begins, so you know what is included and what it will cost.
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In under a minute, David Cammack explains what an EMI scheme can do for your business and how our EMI scheme lawyers set one up.
EMI at a glance
- Tax: no income tax or National Insurance when qualifying options are exercised. Capital gains tax applies when the shares are sold.
- Which companies: independent trading companies with gross assets of up to £120 million and fewer than 500 full-time equivalent employees.
- Who can hold options: employees who work at least 25 hours a week, or 75% of their working time.
- Limit: up to £250,000 of options per employee, measured at grant.
- Our fee: £2,000 to £3,000 fixed, plus £1,500 for a valuation agreed with HMRC.
What can an EMI scheme do for your business?
Enterprise Management Incentives, usually known as EMI, is a tax-advantaged employee share option scheme.
Rather than giving an employee shares immediately, you grant them an option to buy a specified number of shares in the future at an agreed price. If the company grows in value, they can benefit from that growth when they exercise their options and sell the shares.
For the business, this creates a way to reward employees for their contribution over time. You can link their entitlement to continued employment, performance targets or a future sale of the company.
The important point is to decide what you want the scheme to achieve before settling its terms. A scheme designed to retain a small senior management team may need a different approach from one intended to reward employees across the business.
We help you work through those decisions and explain what they mean for you, your existing shareholders and the employees taking part.
EMI legal advice on how your scheme should work
The tax advantages are important, but the scheme also needs to work commercially.
Our EMI legal advice covers the size of the option pool, how options are allocated and the conditions employees must meet to benefit. We also consider how the scheme fits with your existing ownership structure and any plans to raise investment or sell the company.
In particular, we help you decide:
- Who should participate. You may want to include selected employees initially and retain capacity for future hires.
- How much equity to allocate. The awards need to provide a meaningful incentive while taking account of dilution for existing shareholders.
- How options should vest. Employees might earn their entitlement over time, by meeting agreed targets or through a combination of both.
- When options can be exercised. Exercise may be permitted once options have vested or restricted to a sale or another defined exit.
- What happens when someone leaves. The documents should explain whether options lapse, can be retained or must be exercised within a specified period.
- How the scheme works on a sale. The option terms need to fit with the company’s sale provisions and the rights of its shareholders.
We explain the available approaches and their consequences so that you can make informed decisions.
Who will handle your EMI scheme?
If you are looking for EMI solicitors or an EMI law firm, it is helpful to understand how Forward Law operates.
Forward Law is a legal consultancy. Your scheme is handled by David Cammack, our managing director and a practising solicitor with more than 30 years’ experience as a commercial lawyer, including at several leading firms.
David advises on all types of share scheme and works directly with you throughout the process, from the initial discussion through to the option grants and HMRC notification.
David is authorised and regulated by the Solicitors Regulation Authority in his own right. Forward Law is not a firm regulated by the SRA.
Does your company qualify for EMI?
Many trading startups and growing businesses qualify, although eligibility needs to be checked against the company’s structure, activities and the circumstances of each participant.
For most companies, the main requirements at the date of grant are:
- The company must be independent and satisfy the restrictions on control by another company.
- It must carry on a qualifying trade and have a UK permanent establishment.
- Gross assets must not exceed £120 million.
- It must have fewer than 500 full-time equivalent employees.
- The value of shares under unexercised EMI options must not exceed £6 million, measured using their value at grant.
The employees taking part must also qualify. Broadly, each participant must:
- Be an employee of the company or a qualifying group company.
- Work at least 25 hours a week for the business or, if less, devote at least 75% of their total working time to it.
- Meet the material interest test, which broadly excludes interests of more than 30%.
- Stay within the £250,000 individual option limit.
These are the main conditions, rather than a complete eligibility checklist. Checking them properly is the first stage of every EMI setup we undertake.
If EMI is not available, we can explain whether another arrangement, such as unapproved options or growth shares, would meet your objectives.
EMI, CSOP, unapproved options or growth shares?
EMI is often a good starting point for qualifying businesses, but the right arrangement depends on who you want to reward and how you want them to participate.
EMI options offer favourable tax treatment for qualifying employees, with an individual limit of £250,000 measured at grant.
Company Share Option Plans (CSOPs) offer another tax-advantaged option, including for some companies that do not qualify for EMI. The individual limit is £60,000, and options generally need to be held for at least three years to benefit from the income tax relief.
Unapproved options provide more flexibility over who can participate, including contractors, advisers and non-executive directors. They do not carry EMI’s specific tax advantages.
Growth shares give participants shares from the outset, with rights designed to let them share in growth above an agreed value. They may suit senior hires or businesses where an option scheme does not meet the commercial objectives.
We can talk through these alternatives on the discovery call and help you identify which is likely to suit your business.
What are the tax advantages?
Where the relevant conditions are met, EMI options can be granted and exercised without income tax or National Insurance arising. This generally requires the exercise price to be at least the market value of the shares when the option is granted.
When the employee sells the shares, any gain is instead subject to capital gains tax.
The company can usually claim a corporation tax deduction when employees exercise qualifying options, subject to the relevant requirements.
In practice
Priya receives EMI options over 10,000 shares at £1 per share, based on a valuation agreed with HMRC.
Four years later, the company is sold for £10 per share. Priya exercises her options and sells the shares as part of the sale. She pays £10,000 for shares worth £100,000, giving her a gain of £90,000.
- With qualifying EMI options, there is no income tax or National Insurance on exercise. The £90,000 gain is subject to capital gains tax, taking account of any available exemptions and reliefs.
- With unapproved options, the £90,000 gain would generally be subject to income tax on exercise. In this sale scenario, employee’s and employer’s National Insurance would generally also apply.
| Qualifying EMI options | Unapproved options | |
|---|---|---|
| Priya pays for the shares | £10,000 | £10,000 |
| Value of the shares on the sale | £100,000 | £100,000 |
| Gain | £90,000 | £90,000 |
| Income tax and National Insurance on exercise | None | Generally yes, on the £90,000 |
| Tax on the gain when sold | Capital gains tax, after any reliefs | Already taxed as income |
The difference can be substantial, which is why it is worth considering EMI before granting options under another arrangement.
This is a simplified illustration. The tax payable depends on the circumstances and the rules in force at the time.
We explain how these points affect the proposed scheme and coordinate with the valuation partner and your accountant where appropriate.
Our EMI setup process
We manage the legal work in a clear sequence, with the commercial terms agreed before the documents are finalised.
1. Understand your objectives and check eligibility
We discuss why you want a scheme, who you want to include and any relevant plans for the business. We then review the company and proposed participants against the EMI requirements.
This also gives us an opportunity to identify existing equity promises, investment arrangements or other matters that could affect the scheme.
2. Agree the scheme structure
We work through the option pool, individual awards, vesting conditions, exercise provisions and leaver treatment with you.
At this stage, we also consider how the scheme will interact with future investment and a potential exit, so the terms reflect the direction of the business.
3. Arrange the share valuation
Our specialist valuation partner prepares the valuation and seeks HMRC’s agreement.
The valuation needs to reflect the rights and restrictions attached to the relevant shares. We therefore coordinate the legal structure and valuation rather than treating them as separate exercises.
4. Review the company documents and approvals
We review your articles of association and shareholders’ agreement, identify any changes needed and prepare the relevant corporate approvals.
5. Prepare the scheme documents
We prepare the scheme rules and option agreements. We also explain the key terms so that you can communicate the scheme clearly to your employees.
6. Complete the grants and HMRC requirements
Once the documents and approvals are in place, we coordinate signing and guide you through the scheme registration and grant notification requirements.
We also explain the ongoing administration, including annual reporting and the circumstances in which you should seek further advice.
Getting the scheme right before granting options
A useful starting point is to consider how the scheme should operate if circumstances change. What happens if an employee leaves after a year? What if the company raises investment, or a buyer makes an offer earlier than expected?
These questions help establish whether the proposed terms will deliver the intended result. They also bring the option pool, leaver provisions and exercise conditions into focus before commitments are made.
For example, a business may want employees to earn their options over four years but only become shareholders when the company is sold. Time-based vesting combined with exit-only exercise may support that objective.
Before any grant, we check that the agreed commercial terms, share rights, valuation assumptions and scheme documents are consistent, and that the necessary approvals and reporting arrangements are in place.
What does EMI setup cost?
We agree a fixed fee before work starts, based on the scheme and the legal work required.
Our fixed fee for setting up an EMI scheme is £2,000 to £3,000, depending on the number of participants. The valuation is a separate fixed fee of £1,500 through our valuation partner. This covers preparing the valuation and agreeing it with HMRC.
Our proposal explains what is included, the valuation arrangements and whether any changes to the company’s existing documents are needed. You can therefore assess the cost of the whole exercise before committing.
If the agreed work takes longer than we expected, our fee stays the same. If your instructions change the scope, we discuss any revised fee with you before carrying out the additional work.
Forward Law is not currently VAT registered, so we do not add VAT to our fees. If that changes, VAT will be added at the standard rate.
Support after the options are granted
An EMI scheme needs some attention after setup, particularly when the business or an employee’s circumstances change.
An employee leaving, a reduction in their working hours or a change of control can be a disqualifying event that affects the tax treatment. Certain changes to the options can also have consequences.
A disqualifying event does not necessarily mean that all tax advantages are lost. Exercising within 90 days can generally preserve the income tax advantages, although the option terms must allow exercise. It is therefore worth taking advice before agreeing changes or dealing with a departing employee’s options.
We can help with leavers, further grants, option exercises, annual reporting and the treatment of the scheme on a company sale.
If you use our Legal Desk (outsourced general counsel), this ongoing support can be included within your agreed monthly hours.
Questions about setting up an EMI scheme
There is no legal requirement to use a lawyer. However, the tax advantages depend on detailed conditions, and the documents need to reflect what you have agreed with employees and work alongside your company’s existing arrangements.
EMI lawyers check eligibility, advise on the structure and prepare the documents. They also consider how the scheme will operate when someone leaves, you raise investment or the company is sold.
Typically five to ten weeks from start to grant, of which HMRC usually takes two to six weeks to agree the valuation. The timetable depends on the scheme’s complexity, the availability of information for the valuation and how quickly HMRC responds.
We discuss timing at the outset and identify any steps that can progress together. If you want to grant options before a funding round or another event, let us know early so that we can consider the implications.
Yes. Vesting and exercise are separate.
Vesting determines how an employee earns their entitlement. Exercise is when they use the option to acquire shares. A scheme can therefore provide for options to vest over several years while restricting exercise to a company sale.
Contractors and advisers do not qualify for EMI simply because they work with the business. Participants must meet the employment and working time requirements.
Unapproved options may be suitable where EMI is unavailable. We can help you consider the alternatives and how they fit alongside an employee scheme.
No. Agreement of the valuation concerns the share value. It does not confirm that the company, employee or option satisfies all the EMI requirements.
We address the valuation as part of the wider setup process, alongside eligibility, documentation and reporting.
Talk to our EMI scheme lawyers about your scheme
If you are considering an EMI scheme, we can help you work through whether it is suitable and how it should be structured.
Book a free 45-minute discovery call to discuss your business, the employees you want to include and what you want the scheme to achieve. We can then set out the work required and provide a fixed-fee proposal.
