One of the major benefits of establishing your Remotely Managed Startup in London, as a non-resident founder residing in Asia, Africa or Latin America; is getting pre seed fund through the UK government’s funding schemes called The Seed Enterprise Investment Scheme (SEIS)and The Enterprise Investment Scheme (EIS).
Both are venture capital plans funded by the government that aim to help small and medium-sized businesses and social enterprises thrive by attracting investment. In exchange for investing in startups and SMEs in the UK, the programs provide investors with a variety of tax advantages. As a result, the UK’s economic growth will be boosted through encouraging new business and entrepreneurship.
Here we explain you what they are and how you can raise pre seed fund through them for your Remote London Startup.
The Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Participation Scheme (SEIS) provides investors with significant tax advantages in exchange for their investment in small and early-stage startup enterprises established in the United Kingdom.
SEIS was created to help the UK build its economy by encouraging new business and entrepreneurship and making the UK an attractive destination for enterprising founders from all over the world.
The scheme was announced in Chancellor George Osborne’s 2011 Autumn Statement, which included a major overhaul of investor tax incentives, including the Enterprise Investment Schemes and Venture Capital Trusts.
The Seed Enterprise Investment Scheme is now regarded as one of the most prestigious government-backed programs ever devised.
The Enterprise Investment Scheme (EIS)
This scheme is meant for growth and scaling of your Remote London Startup. Your company can raise up to £5 million per year (for a total of £12 million over the course of its existence) under the plan. The Enterprise Investment Scheme (EIS) was established in 1994 to assist small, high-risk businesses in raising funds. It provides a variety of tax benefits to investors who buy shares in these companies, making them a more appealing possibility for investors.
Eligibility Requirements: The Seed Enterprise Investment Scheme (SEIS)
- Your Remote London Startup must be legally registered and have a permanent presence in the United Kingdom
- Your Remote London Startup has to be under two years old.
- Your Remote London Startup’s assets must be worth less than GBP 200,000.
- If your Remote London Startup has any subsidiary, tren It must possess more than 50% of the subsidiary, and the subsidiary cannot be managed by a third party.
- Under the initiative, qualifying businesses can raise up to GBP 150,000, with the cash raised having to be utilised within three years.
- It should not Obtain a listing on any stock exchange
- Your Remote London Startup should not have more than 25 people working for you
- Your Remote London Startup must not trade in one of the scheme’s “excluded activities.”
- Your Remote London Startup must not be controlled by another company
- It should not be joint venture with another company.
- Your Remote London Startup must not pay dividends to shareholders out of the money invested.
- Your Remote London Startup must not control a business that isn’t an eligible subsidiary
Eligibility Requirements: The Enterprise Investment Scheme (EIS)
- At the time of share issuance, your Remote London Startup must have fewer than 250 full-time employees.
- Your London Startup can raise up to GBP 5 million every year and up to GBP 12 million during the course of its existence.
- Your Remote London Startup must use the money raised by the share offering for trade or research and development within two years of the share issue.
- Your Remote London Startup must not obtain a listing on a reputable stock exchange.
- Your Remote London Startup may have subsidiaries, but it must possess more than 50% of the subsidiary, and it cannot be managed by another corporation.
- Any other company cannot have control Your Remote London Startup.
- Your Remote London Startup gross assets should not be in excess of GBP 15 million before to any share offering and GBP 16 million following the issue.
- Your Remote London Startup should not trade in the “excluded activities” of the plan. Some activities may be eliminated, but they should not account for more than 20% of the company’s overall activity.
- The shares that you issue to the investors should be ordinary full-risk shares and should not provide any preferential rights for shareholders in the case of a company’s liquidation.
- The shares must be Completely paid
- Your investor should not be connected to your London Startup. “Connected” indicates the investor is a partner, director, or employee of the company, excluding angel investors (non-remunerated investors); or the investor controls the firm or owns more than 30% of the company’s share capital or voting rights.
- Further more, your investor must not be engage in prohibited trades. Those who deal in land or commodities, those who work in banking, insurance, or money lending, those who provide legal or accounting services, those who work in property development, and those who generate and export energy cannot be your investor. There will certainly be some gray areas that will require further investigation, but it’s worth noting that corporations are only barred from soliciting funds under SEIS and EIS if a “significant” portion of their trading activity is deemed “excluded.”
How to Apply to Get Your London Startup Approved for SEIS and EIS
While these schemes cater to your startup’s funding requirement at different stages, the procedure to get approval is almost the same.
STEP 1. Make an application for Advance Assurance
You can apply for an Advance Assurance for both SEIS and EIS. This is an optional step that most applicants choose to submit because, if approved, it provides your company with preliminary confirmation that it may be eligible for SEIS/EIS. Although this is not a formal guarantee from HM Revenue & Customs (HMRC) that you are eligible, it does indicate that you are very likely to be, which is a good sign for investors looking to get on board
STEP 2. Provide HMRC with a Compliance Statement
File a Compliance Statement (also known as an SEIS1 or EIS1), in which you supply HMRC with detailed information about your firm in order for them to decide whether you are eligible.
STEP 3. Obtain permission from HMRC
HMRC will send you confirmation in the form of an SEIS2 or EIS2 document after your Compliance Statement has been accepted. This will include a one-of-a-kind reference number that you will use to issue Compliance Certificates to your investors.
STEP 4. Send Compliance Certificates to all investors
Now that you have the Compliance Certificate, issued by HMRC, start sending them to your potential investors
Investment & Share Allocation Timing
The importance of timing cannot be overstated. SEIS/EIS shares can only be allocated by your Remote London Startup after the investment monies have been received. This must be recorded in any shareholder/investment agreement, and you must hold the necessary board meetings and shareholder meetings to reflect this.
You cannot, for example, enter into an agreement with an investor in which the firm allots them shares and they pay their investment to the company in installments.
Investors’ Perspective: Why Do They Adore SEIS/EIS?
The opportunity to participate in the newest and most innovative starups with the extra benefit of tax savings is the key draw for seasoned as well as first time investors. There is no inheritance tax to pay on shares held for at least two years under SEIS or EIS, and if the shares are eventually sold at a loss, the investor may deduct the loss from their CGT. Tax relief is also particularly enticing in the United Kingdom, where taxes are at an all-time high.
SEIS and EIS are purpose-built investment vehicles for startups, and the tax wrappers accessible to investors exist to maximize the amount of money available to these companies.
