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Issuing SEIS and EIS shares - 4 key considerations

So, you successfully obtained SEIS and EIS advance assurance from HMRC and successfully raised your “risk finance” capital. Congratulations are in order, as achieving all of this is a lot of hard work! Before you pop open the champagne, however, you must ensure that you correctly issue the SEIS and EIS shares, as errors in share issuance can put all your hard work in jeopardy. (Grab a cup of coffee instead and read on, as there is still more work to do...)

considerations for issuing EIS shares

Share issuances cannot easily be amended once filed and may result in your investors not being able to avail of the Enterprise Investment Schemes. If investors aren’t able to avail of the SEIS / EIS tax incentives, you may end up losing the finance promised to you.

Here are some guidelines to keep in mind when you are about to issue SEIS and EIS shares:


1 - Date SEIS shares at least one day ahead of EIS shares

We have seen some situations where companies shoot themselves in the proverbial foot with relation to SEIS and EIS share issuance. The central area which gets a lot of businesses in complications and prevents them from fully availing of the schemes is the requirement that SEIS shares need to be issued at least one day ahead of the EIS share issuance.

SEIS shares should be issued fully and prior to any EIS shares.

Errors in stock issuance are not easily corrected. A court decree is required to amend stock issuances, and obtaining a court order is lengthy, costly and very hard to achieve. You should know that the odds are against you if you decide to try and change a filed share issuance.


2 - Keep appropriate and thorough documentation

It is good corporate governance to maintain proper documentation on any company transaction, and the following documents should be prepared for your SEIS /EIS share issuance:

1. A written shareholder resolution, explicitly dis-applying pre-emption rights or any other priority rights to assets, dividends, profits or anything else.

2. Board minutes of the company authorising the issue of shares as SEIS / EIS; and

3. A form of share certificate.

The documents need to be filed with the Companies House promptly.


3 - Ensure that the company has received full payment for the shares

You cannot issue SEIS /EIS shares unless the Company has received the monies in full.


4 - At the time of stock issuance, you must ensure that the company still qualifies for the EIS.

It is prudent to make sure that the firm is a “qualifying business trade”. If you had any change in strategy or corporate mission since you applied for advance assurance you need to check again that you still qualify.

Additionally, remember the limitation that you cannot issue more than £5 million of EIS shares in one year; furthermore, based on the fluctuations of the Euro and Pound sterling currency lately, I would suggest you stay lower than £5 million so that you don’t fall foul of any EU State Aid limitations.

Ensure that the applicable headcount constraints and the gross assets restrictions are adhered to (i.e. company can have no more than 250 employees, and no more than £200k in gross assets for SEIS and £15 million for EIS etc.). Also, it should go without saying that the company cannot have gone public since the granting of advance assurance. Any deviation from the regulations would prevent the company from availing of the schemes.

Remember that the SEIS and EIS monies raised are for the organic growth of the qualifying business activity; so that means that you are unable to use the money for other purposes such as, for example, to acquire another company.

The above points do not form an all-inclusive guidance list for issuing shares.  You should also reach out to your legal counsel, but remember that it is your responsibility to get it right.

Seed Enterprise Investment Scheme (SEIS)

Vasiliki Carson
Vasiliki Carson
Vicky specialises in preparing HMRC advance assurance applications for Seed EIS, EIS and VCT, and assists with managing Sapphire's funds. Vicky also assists clients with R&D tax credits, strategic business planning, preparing information memorandums and financial projections.

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