Legal Updates

Commercial Law – ICAS – Consultation – Enterprise Investment Scheme – Proposed Amendments

The Institute of Chartered Accountants of Scotland (“ICAS”) has called for a simplification of the Enterprise Investment Scheme (“EIS”). Commentators have stated that this could be a potential lifeline for many businesses that have been affected by the recent credit crunch.

The announcement has come in the wake of an HM Treasury consultation on the EIS, although the consultation is due to close on the 20th of June 2008. ICAS has argued that lighter regulations as well as unambiguous rules would be welcomed, as it would mean that the costs of implementing the EIS would not be prohibitive to the company seeking investment.

ICAS is of the opinion that the EIS, which is a scheme specifically designed to aid smaller, and therefore higher-risk, trading companies to raise finance. This is achieved by offering a number of different types of tax relief to investors looking to purchase new shares in such companies. By implementing the proposed amendments to the regulations behind the EIS, an incentive could by provided which could encourage investment during the current financial climate.

However, it should be noted that ICAS also believes that not enough businesses are benefiting due to the fact that EIS is quite complex, meaning that some companies are not aware as to whether they meet the qualifying conditions.

Recently, the availability of loan capital has diminished, which has removed an important source of funding from those companies which have been hit the hardest. According to ICAS, the availability of improved EIS incentives could provide an important source of finance to those affected businesses, which would in turn encourage equity investment.

More specifically, the exemption available on any subsequent gain on the sale of shares is beneficial, making the initial risk a more worthwhile prospect.

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© RT COOPERS, 2008. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.


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