In the modern corporate world, it is necessary to use tools and resources to protect and improve the financial health of a company, especially if they pose long-term objectives. Modern start-ups and entrepreneurs taking their first steps in the corporate world are always looking for ways to attract the attention of committed investors, especially when it comes to foreign investors. For this kind of work, the SEIS comes into play, an effective and necessary investment tool for small businesses. In the following article, we will explain everything related to the SEIS application, including topics such as requirements needed or disadvantages.
Considerations to take into account about SEIS application
Before applying to the Seed Enterprise Investment Scheme, you need to take into account some important considerations, especially if you are looking for investors who can help you bring your start-up to life.
There are now rules, updated by the British government, that condition the eligibility of companies. However, to attract new investors, it is necessary to present an “Advanced Guarantee”, which is often requested by investors.
Essentially, an “Advanced Assurance” is a legal document that makes investors understand that they can invest in a given company without taking major risks. While with Advanced Assurance, companies are qualified for risk capital, the document does not guarantee that they are legally qualified to make financial investments.
For an effective SEIS application, it is necessary to process an Advanced Assurance with the name and address of a potential investor who is willing to invest 30% of the SEIS that the company is requesting.
How does a company apply for SEIS?
As mentioned above, the Seed Enterprise Investment Scheme (SEIS) is designed to work in small businesses and especially if they are taking their first steps.
For a correct SEIS application, it is necessary to comply with the following requirements:
- The company must not be listed on the stock exchange.
- The company must be in existence for less than two years.
- The number of employees in the company must be a maximum of 25 people.
- The company may not have assets above £200,000.
- The company must be independent. This means that the company cannot be part of or control other companies.
- It is essential that the company has been founded in the United Kingdom, as well as belonging exclusively to the British territory.
- Finally, the company must belong to an industry that is subject to the criteria of the “Skilled Trades”, determined by the British government.
These are just some of the most important rules that companies should take into account when applying for the SEIS.
These rules were designed by the UK government to ensure that only small companies can apply for the SEIS.
How long does it take to apply for SEIS?
It is important to consider that the SEIS application is subject to applying for and obtaining the Advanced Assurance, which can only be requested from HMRC.
According to a government study conducted in 2019, more than 64% of the applications were approved by those companies that met the requirements.
While correct implementation for the SEIS is not a guarantee of effective fundraising or investor incentives, companies must do a good job and submit all the necessary documents without any errors.
On the other hand, an Advanced Assurance is vital for a company to be able to submit “Declaration of Compliance” forms, known as “SEIS1”, in the future. Once a company has met all the requirements, it can apply to HMRC, which takes approximately 2-6 weeks to respond to all applications.
All forms related to the SEIS can be obtained through the official government website.
In the case of the form to obtain an Advanced Assurance, companies can search in the “Venture Capital Advance Guarantee” section.
Forms for submitting the “Statement of Compliance”, known as SEIS1, can also be obtained from the website.
All forms must be completed with company and investor information, so companies must know and present all relevant investor and investment information to be obtained.
The forms may request some information such as the following:
- Management of the company.
- Date of foundation.
- Date of creation of the actions.
- Name and address of all investors involved.
- Type of shares issued by the company.
- The exact amount of shares owned by each investor.
- The total amount of shares created.
- The number of employees.
- Details of the company’s financial assets.
Of course, the forms are more extensive and require a wide variety of information, but these are just some of the details you should take into account when processing a SEIS application.
Complications and disadvantages of SEIS application
Although the SEIS is an effective and well-designed tool for small businesses to raise the funds needed to excel in the corporate world,
There are certain risks that investors and companies must take if things do not go as planned. Among the most common complications are the following:
- As with any calculated investment, with the SEIS there is a deadline for using the funds raised.
- The investment obtained must be spent within 3 years and must be spent on the activities for which the money was raised. If it is not used, investors not only risk losing their investment but may also have tax problems.
- If investors sell their shares within 3 years, they risk losing the full tax relief.
- If the company goes into liquidation or insolvency, investors may lose the tax relief.
- If the company’s business model changes, it also risks losing all the benefits of the SEIS, especially the tax relief.
- While it is true that businesses are allowed to change their approach a little in the early years, they mustn’t change the business model, as this would be a serious fault for the HMRC.
As you will have realized, to process a SEIS application correctly, it is necessary to fulfill some requirements and conditions, but which are undoubtedly worth fulfilling for those beginner companies that want to last over time.