01 Dec 2016 10:35 AM

There have been some recent changes to the rules on the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) that companies need to know in order to ensure they continue to meet the State Aid qualifying conditions.

Key changes include:

•  Current Shareholders will only qualify for a new issue of EIS shares if either;

  1. The current shareholder was issued their shares under an EIS or SEIS qualifying arrangement or
  2. The current shares are subscriber shares held since the original company formation

So, many current shareholders in private companies may not be able to claim EIS relief if an EIS fund raising round is now sought

•   There’s a new lifetime limit of £15m of total funds which a company can raise under SEIS, EIS or VCT qualifying conditions.

This will affect larger companies and perhaps those also seeking VCT funding where the amounts can be larger.

•  The £15m becomes £20m for “knowledge intensive” companies.  Largely this means companies investing heavily in higher skilled employees to undertake R&D and generate I.P.

•  The company must have traded for less than 12 year unless either;

  1. It had EIS or other state aid qualifying investment prior to the 12 years, or
  2. The company must have invested at least 50% of the value of its annual turnover in the last 30 days.  This seems to be directed towards pre-revenue R&D businesses.

•  A strange additional requirement for the use of the funds is that they must also “promote growth and development”.  There’s no definition of ‘growth and development’ so it seems difficult to see how a company can fail this test if it has passed all the others.

As ever, the legislation is very complex surrounding the qualifying conditions for EIS/SEIS/VCT and expert advice should be taken before making promises to investors.