Can EIS make your business more attractive to Investors?

Friday, April 23, 2010 12:06
Posted in category Finding finance

Should you use the Enterprise Investment Scheme (EIS)?The EIS (Enterprise Investment Scheme) was set up to encourage Investors, by giving them various tax breaks if they help to fund growing businesses.

The business must be set up as a limited company and the shares not listed on the stock market, which means a lot of small companies could use this to attract Investors, but I wonder how many are?

If your eyes glaze over at the mention of CGT Deferral Relief… and calling this a “scheme” doesn’t help, visions of unfathomable, complicated rules pop to mind… you may think that it is like most government business support, just too much trouble to be bothered with.

I recently went through the process of looking at EIS for Company Partners (a couple of potential Investors were keen to use it) and actually it’s not that hard.

You have to firstly make sure that your type of company qualifies, it must be small (

The company has to have been in existence for at least 4 months, but the business doesn’t need to be trading, since the investment could be used for example to start the company up (must start within 2 years).

Each Investor under this scheme can only have up to 30% of the company and the shares that are sold must be ordinary shares (no special rights). The investment goes to the company (by raising some new shares), rather than for instance to the business owner, by him selling his shares.

In return for investing into the company, apart from of course getting a part of the business, the Investor will get 20% of the investment back as tax relief and if the shares increase in value, there is no Capital Gains Tax.

Not bad eh? But there’s more… If the opportunity doesn’t work out, the Investor can claim any amount that they lose on the shares against their own tax.

It is all run by the SCEC (Small Companies Enterprise Centre) on behalf of the Inland Revenue and there is a nice service that they provide, where you can fill in a form to get them to look at your company and the shares you would issue to say whether you qualify. It’s called the advance assurance scheme. This assurance from the SCEC is useful for companies to show to potential investors.

If you want to do this, you should probably have your accountant delve into it for you, since there are always going to be some complications, but find out all you can yourself first.
Here are some links to find out more:
Company Partners (EIS)
Inland Revenue (EIS)

It seems a useful tool to encourage Investors towards your business, so I wonder why more companies don’t do so?

Oh yes, how did we get on? Well it took about 5 weeks for the SCEC to come back after we filled in our form and we did qualify.

 

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3 Responses to “Can EIS make your business more attractive to Investors?”

  1. Tanya Petrena says:

    May 25th, 2010 at 10:24 am

    Sadly that scheme wouldn’t help someone like me, who needs to work from home because my disability. Unfortunately in these types of schemes, you must have money to begin with, but when you are disabled and on benefit, you haven’t got a chance in hell of ever finding enough money to fund a business opportunity or ever finding a scheme that would help and individual like me.

    I have struggled to put up a website, I am trying my best to reach businesses to ask for work by even offering to work for free for a month or a bit longer if they were really struggling, so that they could see if I was suitable for their company, which to me sounds a fair proposition.

    However, sadly I haven’t had an takers for offer which is 100% genuine. Sadly I haven’t got a clue of what else I can do.

  2. Andries Smit says:

    June 5th, 2010 at 4:43 pm

    Hi Tanya
    Why don’t you try freelance websites..? With your skillset you might find some excellent opportunities there! Just google freelance work uk – just note that most of these sites tend to specialise in some industry (IT / design / copywriting). Hope it helps!
    All the best! Andries

  3. Kevin Edgar says:

    February 24th, 2012 at 4:41 pm

    Whilst such schemes are laudable, I think a degree of joined up collaborative thinking wouldn’t go amiss. Having recently offered my business & IT knowledge on a pro bono basis to the excellent new business mentoring scheme supported by the Chamber of Commerce, I was pleasantly surprised to discover how well this was also being supported by many highly skilled and knowledgeable individuals prepared to devote their time to helping start up and young businesses avoid common pitfalls and maximise their potential. Whilst many private investors may be prepared to commit capital to a new or burgeoning business, they may not always have the time or requisite skills to help ensure its success and would probably welcome some collaborative thinking between groups with the same objective of assisting small and growing businesses in the UK to succeed.
    There would appear to be a wealth of experienced business people prepared to freely devote their skill and knowledge to supporting new and growing businesses without expectation of payment or vested interest who are infinitely better qualified to provide guidance to auntreprener than any government department that I ‘m aware of .

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