Grant EMI options with total confidence

1. Context

   What an EMI valuation actually decides

   The Enterprise Management Incentive is the UK's most tax-efficient share option scheme. To grant it, the board must fix two share values at the date of grant: one that sets the option exercise price, and one that tests the £250,000 / £3m EMI limits. Those two figures are UMV and AMV - and the entire report exists to derive them defensibly.

2. 1
   Step 1 - the two values

   UMV and AMV - what each one is for

   The whole report converges on these two numbers. UMV proves you are inside the EMI caps; AMV is what the option holders will actually pay to exercise. Getting either one wrong invalidates the grant.

   UMV - Unrestricted Market Value

   The value assuming no contractual restrictions on the shares. Tests the £250k individual limit and the £3m company limit.

   • Benchmark for EMI eligibility caps
   • Ignores leaver and transfer clauses

   AMV - Actual Market Value

   UMV minus the value impact of the contractual restrictions in the articles and shareholders' agreement. Sets the exercise price.

   • Reflects leaver, transfer, forfeiture
   • Anchor for the exercise price

   The next two steps show how each of these values is actually derived - first UMV from the equity value, then AMV by layering the contractual restrictions on top.

3. 2
   Step 2 - deriving UMV

   From equity value to UMV - the discount stack

   We start with the equity value (DCF, listed comparables, recent transactions or the last funding round), allocate it through the capital waterfall to the option share class, then apply two evidence-based discounts to reach UMV per share.

   Discount for Lack of Marketability (DLOM)

   Calibrated against restricted-stock and pre-IPO studies, the company's holding period and exit horizon. Typical range for UK SMEs: 15-35%.

   Discount for Lack of Control (Minority)

   Applied where the option holding is non-controlling. Sized using control-premium evidence and the rights actually attached to the share class.

   These two discounts belong to UMV. The next set - the contractual restrictions - are what take us from UMV to AMV, and must not be double-counted here.

4. 3
   Step 3 - deriving AMV

   From UMV to AMV - pricing the restrictions

   We read the articles and the shareholders' agreement clause by clause, and price every restriction that would bite on a hypothetical arm's-length buyer of the option shares. Typical AMV discount for standard UK SME articles: 5-20% of UMV.

   Restrictions that typically drive the AMV discount

   • Good/bad leaver provisions
   • Forfeiture triggers
   • Drag and tag rights
   • Pre-emption and board consent on transfer
5. 4
   Step 4 - filing

   The VAL231 submission

   With UMV and AMV set, we package the report and file VAL231 with HMRC's Shares and Assets Valuation team. We stay on the file until agreement is reached and handle any clarifications SAV raises.

   Independent valuation report attached

   Latest accounts, cap table, articles and SHA

   Submitted by the company or by us as agent

   SAV agreement letter fixes UMV and AMV
6. 5
   Step 5 - grant window

   The 90-day window (and what breaks it)

   Once SAV agrees the valuation, the company has 90 days to grant EMI options at the agreed AMV. A "significant event" during that window invalidates the agreement and a fresh VAL231 is required.

   • A new funding round or secondary
   • Material change in trading or forecasts
   • Acquisition or disposal of a material business or asset
   • Change in capital structure or share rights

   Pragmatic rule of thumb: aim to grant within 60 days of the SAV letter, so the board has a buffer if logistics slip.

Optival provides independent valuation advice and supporting documentation. We are not a regulated tax adviser and do not enter into agreements with HMRC on a company's behalf.