Accounting For Advance Subscription Agreements

The usual REQUIREMENTS of SEIS and EIS apply to all shares issued in accordance with an ASA. We have already mentioned the fact that the money paid to the company must be converted into equity to prevent the investor from benefiting from creditor protection, but there are a number of other factors to consider. For example, shares must be common shares and must not have preferential or refundable rights. This article is not intended as a SEIS/EIS guide, so it is important to speak to your accountant/tax advisor to ensure that the ASA document meets HMRC`s requirements. If your company wants greater security when it comes to SEIS/EIS, regardless of the reasonable step, a design version of your ASA should be attached. This legal field is relatively new and is developing and evolving. In our experience, it is important for investors and companies to obtain specialized investment legal advice through ASAS and SEIS/EIS. NB (especially for investors), while we see that pre-subscription contracts are becoming more and more popular, we often find that the startup can never actually issue the shares subject to subscription funds already paid. In one recent case, a startup was liquidated, but since the shares were never issued and no EIS 1 declaration of compliance was filed, investors were not even able to claim EIS loss relief – prompting one investor to call these fundraising mechanisms “opaque deception”! The company should carefully evaluate all other events that would trigger the conversion of pre-fund funds into shares, in addition to qualifying rounds or the long shutdown date, such as the sale of the business. A model subscription contract compliant with SEIS/EIS can be downloaded from our shop. If you collect money in a usual way, a normal subscription contract can also be purchased here. Investment in a company through a pre-subscription contract (ASA) is a form of equity participation and not an investment in external capital, since the invested funds cannot be repaid to the investor in cash. The ASA is an agreement that, although the subcontract funds are paid out at the beginning, the co-investment shares will be calculated and spent at some point in the future.

An investment through an ASA can be made SEIS/EIS compliant because (i) the investor`s funds are threatened in advance and (ii) the investor cannot demand a return on his investment, since the money paid must be converted into shares of the company. . . .