Navigating the investment landscape, it’s crucial to discern between the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). These two differ significantly in aspects critical for both investors and businesses.

Consider the maturity of your business: SEIS is tailored for businesses under three years. EIS caters to those up to seven years of age, or ten for knowledge-intensive companies. Asset-wise, pre-share issue, SEIS is available to companies with gross assets up to £350,000. Meanwhile, EIS pushes the threshold to £15m.

Investment caps for EIS or EIS

Now, let’s talk investment caps. Under SEIS, an investor’s annual limit is £200,000. In contrast, under EIS, it’s substantially higher at £1m. Yearly fundraising caps also differ: SEIS stands at £250,000. EIS allows up to £5m, or £12m over a company’s lifetime.

And what about corporate investors? SEIS says no, but EIS opens the doors, although it excludes them from tax relief.

The differences between SEIS and EIS
The differences between SEIS and EIS

The choice can markedly influence funding strategies. What’s the right path for your enterprise? In a bid to clarify investment protocols, details have come to light concerning the timeframe for capital allocation. The eligibility of directors in holding shares is also highlighted. Within a SEIS/EIS framework, capital must be allocated in a stringent period. It’s 3 years for SEIS and a reduced timeline of 2 years for EIS.

Restrictions of SEIS or EIS

It is imperative to note the restrictions on shareholding for directors under this scheme. A director or individual is precluded from holding SEIS/EIS shares if they possess a ‘connected’ status to the company. This is defined by holding a 30% or more stake in shares or exerting similar voting power. This restriction extends to associates, encompassing close family members such as spouses or civil partners, parents, grandparents, and descendants.

However, it is essential to understand that this does not entirely bar directors from participating; relief may still be available under certain conditions. For a comprehensive understanding of these investment windows and the specifics of director eligibility, read our Guide to SEIS v EIS.

Choosing an SME investment scheme

Selecting an investment scheme hinges on your business’s specific situation and capital requirements. Should your enterprise not meet the SEIS qualifications, like being in operation for over three years or employing more than 25 staff, the EIS pathway becomes essential. Conversely, if your business is eligible for SEIS but your funding needs exceed the £250,000 threshold, a combined approach may be viable. You can initiate with SEIS followed by EIS. Alternatively, simply opting for EIS alone could be a prudent decision. 

In the realm of strategic growth, businesses need to understand the caveats and preconditions of leveraging schemes like SEIS/EIS investment. For those considering subsequent rounds of funding under these initiatives, demonstrating a continuity of purpose is pertinent. The capital injection must be channeled into the same business activity as the initial investment. Furthermore, the foresight of additional follow-on funding needs to have been established from the outset.

For entities new to SEIS/EIS investment, there must be a clear delineation of expansion plans. This opportunity is specifically designed for ventures poised to break new ground. They can do so by diversifying into fresh product territories, or by extending their footprint into novel geographic markets. Ensuring alignment with these conditions is paramount for a successful access to such investment opportunities. As companies seek to embark on a new phase of expansion, aligning investments with this objective is imperative. The criterion is clear — investments should represent no less than 50% of the firm’s average annual revenue, calculated over the previous five-year period.

Can I apply for more than one invesment scheme?

Seeking to leverage multiple avenues for growth? It is possible to apply concurrently for multiple schemes. Admittedly, this approach may introduce complexity and extend timeframes, but the potential benefits for strategic growth should not be overlooked. In the dynamic landscape of compliance, it’s imperative that clients navigate the rules with confidence. Should you encounter complexities, rest assured our expert team is at your service to provide guidance.

This article is supported by our Guide to SEIS/EIS which can be found in our Small Business Guides.

Farringford Legal regularly supports SMEs looking to use either the SEIS or EIS schemes to raise finance for their business. Our corporate and commercial team would be delighted to help you in securing the investment you need to help your business grow.