The start position is that a director is not eligible for EIS because they are “connected” to the company by employment.
There’s an exemption for:
- existing directors that are not receiving a salary;
- new directors who were not involved with the business before they invested.
This post deals with scenario 2.
The exemption is in place because HMRC recognises there can be value in a new investor supporting the business with advice – and perhaps more formally as a director.
For the exemption to apply and for an investment by a new director to be eligible for EIS, at the time the shares are issued, the new investor must not have been “connected” with the company nor involved in anyway in carrying on the company’s trade.
This means the appointment as director should happen after the shares have been issued.
The usual circumstances are where an investor meets a founder and wants to invest in their company. And, either the founder wants the investor to be appointed as a director or of course, the investor requires it as a condition of the investment.