Corporate mistakes your business may have made

...and what you should do about them.

Corporate requirements can be fiddly and, sometimes, unintuitive. It is easy for businesses to trip up on corporate issues. In this series we look at 10 of the most common corporate mistakes companies make, and, more importantly, what they should do about them.

When does it happen?

EMI options are amazing - when they are implemented properly. They have great tax advantages, and work as a brilliant incentive and reward for your best people with little upfront cost. However, they are notorious for going wrong (even when external advice is taken) as the rules although not complicated are fiddly. In most M&A transactions we advise on with EMI options, there is almost always at least one risk factor associated with the EMI options. At best, this can delay a transaction and increase seller costs – at worst it can kibosh a transaction.

What mistakes are made?

Lots – and some of them are surprising. My colleague Kathy has written a brilliant article on this. There may be issues with the ways the EMI options were implemented or there may have been a “disqualifying event” since.

Why does it matter? 

All the tax advantages of EMI options can be lost to the point where employees may have a significant tax bill on exercise. Often the likely outcome is dreamy tax efficient  share options have to be replaced with costly PAYE bonuses.

Key employees may also be extremely disappointed that the equity they have been promised doesn’t live up to expectations. Annoying your best people at the time of a transaction can have a real impact, especially in creative people-focused businesses.

If you wish to sell your business in the future, any prospective buyer will almost certainly insist that sellers bear all risk and cost associated with problematic EMI options.

What can you do about it? 

If you have any concerns about your EMI options, get a health check of them. The sooner the better. If the options need replacing, then it is much better to do this before your business grows and generally better to do this as far as possible ahead of a potential exercise of those options.  

Interested in reading what other mistakes you business may have made? You can read the full article with #1 – 10 here.