EIS, or Enterprise Investment Scheme, helps entrepreneurs raise money to grow their businesses. Your company must receive investment under the venture capital scheme within seven years of making your first commercial sale. The UK government has taken this initiative to help small business owners raise funds to grow their companies. If you have an EIS-qualified company, you will receive other benefits like significant tax breaks.

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

From The Firm’s View

How to qualify for EIS?

Companies that qualify for the EIS shares can be from different sectors and industries. You need to follow specific rules to qualify, but the ultimate thing is that the company should aim toward making profits.

Knowledge-intensive firms are generally the ones that have young and innovative business plans. For example, if you are developing new software to make accounting easier, yours would be considered a knowledge-intensive company. Read the specific requirements set up by HMRC to understand if your company comes under the knowledge-intensive category.

Who Are Not Qualified?

Companies that are not qualified for the EIS shares would include:

• The ones dealing with commodities, lands, and shares 
• Those with significant backing assets or contractual revenue schemes
• Qualification restrictions on the age and size of the company (however, things are a little relaxed for the firms falling under the knowledge-intensive category)

Read the exclusion criteria carefully to understand the scope for investors and if your firm is qualified for EIS.

From The Investor’s View

Investing in a single company v.s portfolio

You can invest in EIS in two ways- directly or through a fund manager. These options can benefit your portfolio if you are an experienced investor. 

If you invest in a single company, things will be more visible and under control. However, a single investment bears greater risks because the returns are uncertain and totally depend on one company’s fortune. There are examples of several EIS-qualified companies that have failed in the past.

However, investing in diversified EIS funds within a sector can be a great decision. Hire a qualified professional who can research the opportunities on your behalf and make investment decisions. You can spend some time and effort doing it independently, but expert advice is always recommended. Remember that portfolio investments can fail, too, if not done rightly.

Before you start investing, make sure you know about the market and the company you will invest in. A fund manager is there to assist you, but you need to understand the overall condition as you are investing money.