The Enterprise Investment Scheme or EIS is an initiative by the UK government, designed for encouraging the private investors to invest in various UK start-ups. It gives them the required back-up in the form of tax reductions to reduce their risks.

The government offers a wide range of tax reliefs to the investors, so that they get encouraged to invest more and consider taking greater risks for purchasing new shares.

The scheme is perfectly designed for companies, who are at the earlier stage and more risky. The investors would readily invest in the start-ups backed up by the scheme so that they would get some good federal tax relief. It would add up to their portfolio and help them save a lot of money.

The best part of investing in the EIS shares is that, you would not have to give any tax or percentages of your profit. Also, in case the company receives any kind of losses during the transactions, they would be covered by the government.

Also, considering the scheme, the investment is made at an early stage, so there is a high chance that the overall value might fall. This is in fact a greater risk than any other investment risk, which is why the scheme comes with loss relief which gives that much required cushioning effect.

What is the purpose of the scheme?

The EIS is designed in such a way that it would help small companies to get investments and grow their business. The scheme also benefits the investors as it offer various tax benefits which help them to save a lot of money. However, the companies need to fulfil some criteria so as to get listed under this scheme.

Which companies can make use of this scheme?

Companies with the following features can make use of the scheme:

• They should have a permanent office or establishment set in any part of the UK.
• It is essential that the company should not trade on any of the recognized stock exchange at the time of share issue. They should not plan to do so as well at that time.
• They should only control qualifying subsidiaries and not any other companies.
• The given company should not be controlled or it should not have its more than 50% share held by other companies.

Also, the company who is listed under the scheme would receive some business relief. It helps in maximizing the saving which in turn, helps to allocate more funds to business operations.

Whether you are a budding entrepreneur who wants to raise funds for his/her startup or you are an investor who wants to get some tax benefits, it is important to understand the EIS scheme before you take the next steps. It will help you gain the max benefits.