We value shares for EMI purposes, set out both of the values the rules require, and help companies and their advisers seek agreement of those values with HMRC before options are granted.
When is this valuation required?
- A company is granting EMI options for the first time.
- Further options are being granted after a funding round or a period of growth.
- The company's circumstances have changed since an earlier valuation was agreed.
- Options are being granted at a discount, or the exercise price needs to be set.
Who instructs us?
- Founders, directors and finance teams of growing companies
- Accountants and share scheme advisers
- Corporate and employment solicitors
What exactly is valued?
The shares under option, normally the class of ordinary shares employees will acquire. Because EMI options usually concern small, non-controlling holdings in private companies, the rights attached to the class and the restrictions in the articles are central to the valuation.
How is value assessed?
We value the company at the grant date, often with significant weight on recent funding rounds and forecasts for growing businesses, then consider the share structure, including any preference shares ranking ahead of the ordinary shares. Finally we value a small holding of the option shares, reflecting the lack of control and marketability.
How the approaches are usually weighed
Typical
- MarketRecent funding roundsUsual starting point
- IncomeForecasts for growing businessesCross-check
- AssetAdjusted net assetsWhere relevant
Actual Market Value and Unrestricted Market Value
The EMI rules use two measures. Actual Market Value (AMV) is the value of the shares taking account of any restrictions attached to them, such as compulsory transfer on leaving. Unrestricted Market Value (UMV) is the value as if those restrictions did not exist. The two can be the same where the shares carry no relevant restrictions.
Each value plays a different role. UMV is relevant to the limits on how many options can be granted, and AMV to whether any income tax arises on exercise. Your adviser applies the rules; we provide both values and explain the difference.
Agreeing the valuation with HMRC
Companies can ask HMRC's Shares and Assets Valuation team to agree the AMV and UMV before options are granted. An agreed value is normally valid only for a limited period, set out in HMRC's response, and options should be granted within that period. We prepare the valuation and supporting analysis that your adviser submits, and help respond to any questions HMRC raises.
If something significant happens before grant, such as a new funding round, a sale process or a major contract, a previously agreed value may no longer reflect the shares' worth and should be revisited.
What factors influence the result?
- Recent funding rounds
- Price per share paid by investors, adjusted for the rights their shares carry.
- Share classes
- Liquidation preferences and other investor rights that rank ahead of ordinary shares.
- Stage and forecasts
- Revenue, growth trajectory and the realism of plans.
- Exit expectations
- Whether a sale or listing is in contemplation at the grant date.
- Restrictions
- Leaver and transfer provisions that create a gap between AMV and UMV.
What information is required?
- Articles of association, investment agreement and cap table
- Recent accounts, management accounts and forecasts
- Details of recent funding rounds and their terms
- The proposed option grants and grant date
- Any approaches from potential acquirers
We send a tailored information request once the scope is agreed.
What report will you receive?
We provide a valuation report stating AMV and UMV at the proposed grant date, with the analysis HMRC typically expects to see. The report can be submitted by your adviser with the request for HMRC's agreement.
See types of business valuation reports for how the scope of each type differs.
Timing and cost
How long will it take?
Because an agreed value has a limited life, it is best to commission the valuation shortly before you intend to grant. Tell us your planned grant date when you enquire.
How much does it cost?
Fees depend mainly on the complexity of the share structure and the company's stage. Straightforward single-class companies cost less to value than companies with several investor share classes.
How our fees are set →Frequently asked questions
What is an EMI valuation?
A valuation of the shares under option at the grant date, setting out the Actual Market Value and Unrestricted Market Value that the EMI rules rely on.
Who needs an EMI valuation?
Companies granting EMI options, usually on the advice of their accountant or share scheme adviser, particularly where they want certainty about the tax position by agreeing the value with HMRC.
How long does an EMI valuation remain valid?
HMRC's agreement normally applies for a limited period stated in its response. After that, or if circumstances change significantly, a new valuation is usually needed before further grants.
Why is the EMI value lower than the investors' price?
Investors often hold preferred shares with rights that ordinary shareholders do not have, and they typically buy larger stakes. A small holding of ordinary shares without those rights is usually worth less per share.
Do you set up EMI schemes?
No. We provide the valuation. Scheme design, documentation and HMRC notifications are handled by your share scheme adviser or solicitor.
What happens after a major change in the company?
A funding round, sale process or major commercial event can change the value of the shares materially. A previously agreed value may then need to be revisited before new options are granted.
