March 21, 2018


The first fairly obvious thing to state; if the external investor does not understand where the company is generating its value, how can he or she determine where the future opportunities lie? Whether selling a 5% or 95% stake, Neil’s pointers are critical to finding that all-important investor. Leaving that to one side, in reality what does the S/EIS process look like?

The key to a successful S/EIS application is effective collaboration. The company directors, their tax and legal advisers alongside the investor and his or her advisers, all working towards one goal.

Step 1

1. Can both the company and the investor qualify for S/EIS?

If not the S/EIS discussions end here but not necessarily the investor discussions!

Step 2

  1. Establish the investment proposed, the length of their investment and for what stake in your business (see Piers Millar’s article for more investor insight).
  2. Does the investor want to undertake due diligence, if so what level of information do they require and what legal protection is necessary to undertake this process e.g. confidentiality agreement.
  3. Agree upon what policies the existing shareholders and investor require within the company (see Steve Workman’s article).
  4. Consider any third party discussions regarding the new shareholder e.g. sector based notifications or your bank relationship manager.

Once all parties are agreed on the basics, move onto step 3.

Step 3

  1. Legals – update and agree upon new company documentation (see Angus Bauer’s article).
  2. Together determine the terms of the share issue to ensure that they satisfy the conditions for S/EIS.
  3. Apply for S/EIS advance assurance from HMRC (advised but not obliged).

Once advance assurance is agreed or all parties are happy that the conditions are met, move onto step 4.

Step 4

  1. The investment is made and the shares certificates issued, statutory registers are updated, shareholder agreements signed and associated policies put in place.
  2. The company’s tax adviser submits the S/EIS1 application to HMRC.
  3. Once the S/EIS2 certificate along with the investor’s S/EIS3 certificate is received from HMRC, complete the necessary entries, directors sign and supply the all important completed S/EIS3 certificate to the investor.

Step 5

  1. The investor makes his or her S/EIS claim for income tax relief and/or CGT deferral (see Helen Cross’ article).
  2. Review the company and investor activities until the termination date has passed, to ensure the investor’s tax relief remains intact (see “EIS relief obtained but secured?” article).

Once the termination date has passed, the company and investor are then free of their S/EIS obligations. Hopefully with three years now passed and with the injection of capital, the company is now well on its way to exceeding its business plan expectations and forecasts - simple!

Joking aside, hopefully this article provides a little appreciation for the level of professional advice necessary and the commitment required from all parties to successfully introduce an external S/EIS investor.


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