As a business grows, keeping key employees motivated and aligned with its long-term success becomes increasingly important. Salary and bonuses can help, but many businesses also want key people to share in the value they help create. Two common approaches are Enterprise Management Incentive (EMI) options and growth shares.
How EMI options work
An EMI option gives selected employees the right to buy shares in the future. The employee does not normally become a shareholder immediately: exercise can be linked to continued employment, performance targets or a future sale.
EMI can also be very tax-efficient. If the option remains qualifying and the employee pays at least the shares’ market value when the option was granted, growth in value will usually fall within the Capital Gains Tax regime rather than being taxed like salary. Relevant EMI shares may also qualify for Business Asset Disposal Relief without the normal 5% shareholding requirement, subject to the detailed conditions.
From 6 April 2026, EMI became available to many more businesses. For most qualifying companies, the gross assets limit is £120 million, the employee limit is fewer than 500 full-time equivalent employees and the overall company option limit is £6 million. Each employee remains subject to a separate £250,000 limit. Different limits continue to apply to a limited category of Northern Ireland companies.
How growth shares work
Growth shares take a different approach. A new class of share is created which participates mainly in future growth above an agreed hurdle. Existing owners can therefore preserve the value already created while allowing employees or management to benefit from future success.
For example, if a business is worth £5 million today, growth shares might only participate in value above £6 million. If the company is later sold for £10 million, the growth shareholders could receive an agreed proportion of the £4 million above that hurdle.
Growth shares are flexible. Their voting rights, dividend rights, growth participation, leaver provisions and sale rights can all be designed around the commercial objective.
Valuation is critical
Growth shares should not simply be assumed to have nil or nominal value because they sit behind a hurdle. Their future potential can have value today. Where shares are acquired by employees or directors for less than market value, employment tax consequences can arise. Restricted shares may also require specific elections shortly after acquisition, so valuation and tax should be considered before the shares are issued.
Which approach is right?
For many qualifying companies, EMI is a natural starting point because employees can be incentivised without becoming shareholders immediately. Growth shares may be better where the business wants employees to own shares from the outset, needs a bespoke economic arrangement or cannot qualify for EMI.
The two approaches can also be combined: EMI options can potentially be granted over a specially designed class of growth shares.
The best starting point is commercial rather than tax-driven. Decide who should participate, whether they should benefit from existing or future value, when they should become shareholders and what should happen if they leave or the company is sold. The tax and legal structure can then be designed around those objectives.
It is also worth thinking ahead to future fundraising or a sale. New investors may have views on option pools, growth hurdles and the number of share classes in issue. An incentive arrangement that works today should therefore be designed so it can still operate sensibly if the ownership structure changes later.
How Syon Tax can help
Syon Tax can help assess EMI eligibility, compare EMI with growth shares, consider valuation and employment tax issues and work alongside legal advisers to implement an incentive structure that reflects the shareholders’ commercial aims.
