What Are EIS Shares?

 

Enterprise Investment Scheme or EIS is designed to help entrepreneurs raise money for their company's growth. Your business must receive investment under the venture capital scheme within the first seven years from when you have made your first commercial sale. The UK government is a great scheme to help small business owners raise funds and grow their companies. If yours is an EIS-qualified company, you would also receive other benefits in the form of significant tax breaks.

The EIS qualifying companies are mostly small and privately owned, even though they might be listed on AIM. By definition, these companies must have gross assets less than £15 million at the time of investment, and also there should be less than 250 employees in total. However, these rules can be greatly relaxed for a few cases where the firm is knowledge-intensive.

Qualifying For EIS

The companies qualifying for the EIS shares vary significantly across several sectors and industries. The rules to get qualified are quite specific, but the basic necessary thing here is that the company should aim to make profits. However, companies dealing with commodities, lands, and shares are excluded from these benefits. In the recent amendment, companies with significant backing assets or contractual revenue schemes have also been excluded.

There are also restrictions on the age and size of the company (the knowledge-intensive ones always enjoy preferential treatments). You should read the exclusion criteria carefully to understand the scope for investors.

The knowledge-intensive companies are the ones that have young and innovative business plans. For example, if your company is developing a new drug, it would be considered a knowledge-intensive company. You would need to read the specific requirements set up by HMRC to understand if your company can be categorised as knowledge-intensive.

Investment In A Single Company Or Portfolio?

There are two ways by which you can invest in EIS shares - directly or through a fund manager who is helping you build your portfolio. Both these options will benefit your portfolio if you are an experienced investor.

If you invest in a single company, that will enhance visibility and control. However, the investment also bears some risk because the returns to your investments totally depend on the company's fortune. But it does not mean that one should not invest in a company as it may be vice-versa.

On the other hand, investing in diversified EIS funds within an area will be a more comfortable experience for you. A qualified professional will be researching the opportunities on your behalf and making investment decisions.

Thus, it is important to remember that EIS investment involves some risks also and should only be done by experienced company investors. Taking the help of experienced investors will minimise your risks with maximum benefits.