An investment in a business through a preliminary contract (“ASA”) is a form of equity and not an investment of capital, since the invested funds cannot be repaid to the investor in the form of cash. The ASA is an agreement whereby, although the reference funds are paid out in advance, the shares of the investment will be calculated and issued at a later date. An investment through an ASA can be made compliant with SEIS/EIS, because (i) the investor`s funds are threatened from the outset and (ii) the investor cannot demand the return on his investment, since the money paid must be converted into company shares. A SEIS/EIS compliant model for pre-presentation agreements can be downloaded from our store. If you collect money in the usual way, you can also buy a normal subscription contract. New investors should take into account the statutory provisions of the company in which they invest and the shareholders` pact (if any), since the investor is subject to these documents as soon as the company has issued the new shares and awarded them to the investor. The use of an ASA has benefits for both investors and the company. It may be more convenient for the company, because in order to issue shares, a company must be evaluated formally and professionally to determine the value of the shares. This can be a long-term process that can prevent the company from receiving the investment.
Implementation of an agreement will speed up the transfer of funds without the formal protocol, which will then be finalized at a later date. In particular, HMRC highlights the specific characteristics that an ASA must have to be adapted to EIS or SEIS relief and confirms that it will only consider an ASA for THE EIS or SEIS if the agreement is relatively new, that it continues to grow and develop. In our experience, it is important that investors and businesses receive technical investment legal advice through ASAs and SEIS/EIS tax breaks. NB (especially for investors), while we find that pre-registration agreements are becoming more and more popular, we often find that the start-up never manages to spend the shares that are subject to the subscription fees already paid. In one case, we saw recently that a start-up was dissolved, but since the shares were never issued and no EIS 1 compliance statement was filed, investors were not even able to claim loss relief on EIS – which led an investor to call these fundraising mechanisms “opaque Seims”! HMRC will not consider pre-subscription contracts to be appropriate for SEIS unless the agreement provides that an investor transfers funds to a company in order to acquire a share acquisition right at a later date (usually the next qualifying financing cycle). By moving the evaluation process to multiple fundraising rounds, the company can raise money more quickly. Investors often benefit from a higher return on their investment, as they generally receive a 10-30% discount on the price per share in the next round of financing to compensate for their advance transfer. You can create a SeedFAST chord on SeedLegals in less than 10 minutes.