What type of organisations fit for the Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is a government-backed scheme designed to help businesses raise funds by offering tax reliefs to investors.
The scheme has been in effect since 1994, and a lot of businesses and investors have benefited from the scheme. Although, it’s better suited to certain types of businesses and there are some criteria to be eligible.
Here is a look at some of the types of organisations that fit the EIS model better than others, and the criteria you must meet to qualify:
Companies that are eligible for EIS funding
To be eligible for EIS, according to HMRC your company must meet the following criteria:
- Your company must have a permanent establishment in the UK
- You cannot control another company other than qualifying subsidiaries
- You do not expect to close operations after completing your current projects
- Your company is not owned 50% or more by another company or is not controlled by another company
- You are not/do not plan on trading on a recognised stock exchange market at the time of issuing shares
- Your company does not have gross assets worth £15 million or more prior to shares being issued, and will not have assets worth £16 million or more afterwards
- You have fewer than 250 full-time employees (or equivalent) when the shares are issued
- Your company did not make its first sale more than 7 years ago
What type of organisations best fit the enterprise investment scheme?
Obviously, the eligibility criteria above means that only certain companies can apply for investment within the enterprise investment scheme.
Even if a company meets all of the requirements, it’s still not always the best funding option. Here are types of organisations EIS is best suited to:
Startups
The term “startup” is used broadly nowadays, but the model behind a startup is perfect for EIS funding.
In summary; a startup is a company in its early stages of development, typically looking for ways to grow and scale up as quickly as possible.
It’s estimated that around 66% of startups secure funding through an investor or in the form of a loan. It can be difficult for new companies to secure funds in a more traditional way without having years of proven earnings.
EIS investors are typically willing to take more of a risk than other investors. There are still the same risks associated with investing in a new company. Although, the tax relief available through the scheme is intended to help mitigate some of the risk.
Innovative in need of funds to grow
There are various reasons why companies seek investment capital. One of the most common reasons for a company seeking EIS is because they are entering a growth phase.
The more a company grows, the more its shares increase in value, and the greater the return to the investor. Along with the tax relief offered as part of the scheme, makes this an attractive proposition for investors.
Companies with long-term goals
Investors considering EIS aren’t typically looking for a quick turnaround. They are buying shares in a company with the view of seeing a positive return growing over time.
If you’re raising funds for a machinery purchase, some marketing efforts, or similar, EIS is not going to be the best type of funding for you.
If you have a solid business plan in place and can demonstrate that you’re expecting year-on-year growth as a result of the extra funds, then the EIS is better suited to your business.
