Are you missing out on potential financing opportunities to grow your business? Corporate solicitor David Gee explores the potential benefits of companies obtaining qualifying EIS status to drive their growth forward.
By David Gee,
Are you missing out on potential financing opportunities? Companies which obtain qualifying EIS status are far more likely to attract private equity investment which could open up greater opportunities for growth – and with the information and communications sector once more topping the charts in 2017/18, your rivals could be benefiting where you are not.
On 29 May 2019, HMRC released the latest EIS figures for 2017-18 which confirmed that the scheme continues to thrive – particularly in the information and communications sector. Since the scheme’s introduction in 1993/94, over 29,000 companies have received investment with over £20 billion of private equity funding having been raised.
According to HMRC’s latest figures, in 2017/18, 3,920 companies raised a total of £1.929 billion in funds through the EIS scheme. Of this, companies in the information and communication sector accounted for a whopping 33%, equating to £641 million of investment.
The figures equate to an average in excess of £450,000 raised per company – certainly more than a useful sum for any PR agency to drive growth.
So how do you qualify and what are the benefits?
In order to qualify, the company itself (along with other conditions) must have been trading for under seven years, have fewer than 250 employees, have gross assets that do not exceed £15 million before (or £16 million after) the investment, be unquoted and must not be controlled by another company.
Should the company qualify, an investor could stand to benefit from lucrative income and capital gains tax reliefs.
Investors may claim income tax relief at 30% of the sums invested up to a potential maximum of £2million per year. Moreover, investors may have the possibility to claim hold-over relief and be exempt from capital gains tax in respect of any gains made on the investment. They may also be entitled to claim a deferral if the proceeds of any disposal are used to make a further qualifying investment.
Therefore, if a company obtains EIS qualifying status, the potential benefits for investors make the company a far more attractive investment proposition. As such, the company can seek to attract investment from private equity investors who may otherwise consider the business too risky - or not even consider the business at all.
As a result, EIS qualifying status will likely result in greater options to fund the growth of the business. Moreover, sourcing funding through private equity investment means that the business will not be taking on debts which require servicing and will command interest.
The company will also not be burdened by what can often be unwelcome restrictions on its activities under the terms of a loan.
So if you are looking to grow your PR agency, why not look into tapping in to the largest EIS sector in 2019? The funding could be there to take your agency to the next level.
David Gee is a solicitor in the corporate team at Fletcher Day. www.fletcherday.co.uk
If you would like further information in respect of EIS or would like to discuss any aspects of this article, please contact David at firstname.lastname@example.org.
Image courtesy of flickr user Pictures of Money