EIS is a tax efficient scheme operated by HMRC to encourage support for early stage companies. The details of the scheme are given here:
The scheme has both initial an ongoing requirements and the company is limited to a total of £5 million from venture capital schemes (SEIS, EIS, VCT) in any 12 month period. EIS tax advantages are attractive making this one of the more accessible routes to raising venture finance.
The qualification requirements are extensive and should be understood by all parties to the investment agreement, executive management and directors. Most early stage companies created specifically to undertake a qualifying trade will meet the requirements. The links above provide clear guidance on using the scheme but note that many terms used are tax specific in their meaning. Professional advice should be sought when making an advanced assurance application. This facility allows companies to submit details of their plans to raise money, their structure and their activities in advance of an issue of shares, so that HMRC (SCEC) can advise on whether or not the proposed share issue is likely to qualify for relief. The application should be done using the EIS(AA) form. The advanced assurance process from application will typically take six weeks and at busy periods can take longer.
The advanced assurance advises if the company will qualify based on the information declared in the application. It is therefore important that all relevant information is declared. HMRC will check that all the requirements have been achieved at exit so it is important that the company continues to maintain its qualifying status after the investment. The EIS(AA) form requires the company unique tax reference number as part of the application.
Registering a new company can be done online at Companies House but in the best case it is likely to take a further 10 weeks to close an SEIS or EIS qualifying round complete with advanced assurance from HMRC. It is now possible to close an EIS round shortly after completing an SEIS round (but not on the same day).
SEIS and EIS investors can co-invest along side other types of investors and funds but it may be necessary to ensure that the are carved out from some investment terms. The most common of which is a liquidation preference which can not be given to SEIS/EIS investors.