Income Tax Act 2007 section 173

The shares requirement

Section 173 sets out the conditions that shares must meet in order to qualify for EIS relief, covering the type of shares, their rights, and how they must be paid for.

• The shares must be ordinary shares that carry no preferential rights to dividends (of a discretionary or cumulative nature), no preferential rights to assets on a winding up, and no right to be redeemed, throughout the relevant period (period B).
• Unless the shares are bonus shares, they must be subscribed for wholly in cash and be fully paid up at the time of issue, with no undertaking to pay cash at a future date in respect of the acquisition.
• A preferential dividend right is caught if the amount or timing of dividends depends on a decision by the company, the shareholder, or any other person, or if unpaid dividends from an earlier date roll up into later dividend payments.
• These requirements ensure that only full-risk ordinary shares qualify, so that investors genuinely share in both the upside and downside of the company's performance.