ETASSUM52030 - Enterprise Management Incentives (EMI): Qualifying companies: Independence requirement

Paragraph 9, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

To be a qualifying company for EMI, a company must not be a 51% subsidiary. This means that more than 50% of its ordinary share capital must not be owned by another company or controlled by another company, or by another company and persons connected with it. Arrangements must not exist which could result in the company becoming a 51% subsidiary or otherwise being controlled.

Control in this context means the power of one company to ensure that the affairs of another company whose shares are subject to EMI option are conducted in accordance with that company’s wishes. This may be through share ownership, voting power, or because of any powers conferred by Articles of Association or other document, (sections 719 ITEPA and 995 Income Tax Act 2007 (ITA)).

Connected has the meaning given in section 993 (ITA), see (CG14580 onwards, which deals with similarly worded legislation).

Note that, as well as the more obvious connections, section 993(7) ITA provides that persons are to be regarded as connected in relation to a company if they act together to secure or exercise control of that company. The provision extends to persons acting on the direction of any of those persons. Guidance can be found at CG14622.