Share Issuance & Cap Table
for SEIS founders

Most SEIS and EIS failures do not happen at advance assurance. They happen at the share issue itself, when the wrong share class is allotted, the issue is dated incorrectly, or the cap table at the moment of issue puts the company in apparent breach of a qualifying test. The share issuance and cap table work is where SEIS and EIS rounds actually live or die.

Specialist accountants in our network handle the full share-issuance pack: drafting board minutes that meet HMRC's expectations, preparing subscription agreements, issuing share certificates, filing the SH01 return of allotments at Companies House, and updating the register of members. They also maintain the cap table over time so the qualifying-period tests stay green and any subsequent round (EIS, options, secondaries) is structured without breaking prior SEIS positions.

Cap table maintenance is not a one-off task. EMI option grants, leaver buybacks, secondary sales, and follow-on investment all have to be tested against the SEIS or EIS positions still inside their three-year qualifying periods. A specialist accountant maintains a live cap table that flags any contemplated transaction as compatible or incompatible with prior reliefs.

Every SEIS or EIS share issue is a small piece of corporate law. The mechanics are: a board resolution authorising the allotment, a subscription instrument signed by each investor (typically a subscription letter or a more formal subscription agreement on a priced round), payment of the subscription monies into the company's bank account, the allotment of the shares, the issue of share certificates to each investor, the update of the register of members, and the filing of the SH01 return of allotments at Companies House within one month. None of these steps is optional, and a missing or backdated step is the kind of detail HMRC catches at the SEIS1 review stage.

The share class itself is rigorously prescribed by the SEIS and EIS legislation. The shares must be ordinary shares (a defined term in the Companies Act 2006), they must not carry any preferential right to dividends, they must not carry any preferential right to assets on a winding up, and they must not be redeemable. Voting rights are permitted (and usual). Standard pre-emption rights and standard drag-along and tag-along provisions in the articles or shareholders' agreement do not breach the SEIS or EIS conditions. What does breach is a liquidation preference of any kind, a coupon, a put option in favour of the investor, or any contractual mechanism that effectively gives the investor capital protection.

The cap table at the moment of issue has to satisfy several tests simultaneously. The control test requires that no other company controls the SEIS or EIS company (control means more than 50 percent of share capital or voting rights, with attribution rules that can catch corporate shareholders). The independence test (a slightly different formulation of broadly the same idea) requires the company not to be a subsidiary of another company. The connected-persons test means a SEIS or EIS investor cannot be an employee of the company at the time of the share issue, cannot be a director who has more than 30 percent of the share capital after the issue, and cannot be related to anyone who is in those positions. All of these are tested at the moment of issue and have to remain satisfied through the three-year qualifying period.

Round sequencing across days becomes critical when more than one type of share is being issued. The textbook example is a combined SEIS and EIS round: the SEIS shares must be issued first, followed by the EIS shares, with the share certificate dates and the register of members entries matching that order. A common failure pattern is closing the round with all subscription monies received on the same day, allotting all shares with the same allotment date, and then trying to retrospectively present some as SEIS and others as EIS. HMRC reads the same-day allotment as a single issue and requires the SEIS share class to be the entirety of the issue or none of it.

Cap table maintenance over time is where the long-term value of the share issuance specialism shows up. Most companies issue shares more than once: SEIS round, EIS round, EMI grants and exercises, leaver buybacks, follow-on rounds with new investor classes, secondary sales of founder shares to angels. Each of these has to be tested against the prior SEIS or EIS positions still inside their qualifying periods, and the wrong move (a buyback that returns value to a SEIS investor, an EMI exercise that pushes a previously-passive investor over the connected-persons threshold, a corporate acquisition without the share-for-share exchange clearance) can trigger clawback on a prior round. A live cap table with three-year qualifying-period flags is the operational tool that prevents this.

SAFEs (Simple Agreements for Future Equity) imported from the US ecosystem are not directly SEIS-compatible. The HMRC view is that SEIS and EIS relief attaches only to ordinary shares actually issued for cash, and a SAFE is a contractual right to future shares rather than the shares themselves. The convertible loan note has the same problem. The UK-conventional alternative is the Advanced Subscription Agreement (ASA), under which the investor pays cash up front and the company is obliged to issue shares within six months. HMRC accepts ASAs as SEIS-qualifying provided the share issue actually completes within the six-month window. Founders importing US documentation without checking should expect their accountant to redraft the instruments before the SEIS round.

EMI option pools and SEIS rounds run in parallel without conflict, but the option pool needs to be sized into the post-round fully diluted cap table at the start. A common pattern is for a founder to close a SEIS round with a 10 percent fully diluted ownership for SEIS investors, then later realise the company also needs a 10 percent EMI option pool for early hires, and the dilution comes off the SEIS investors. Either the option pool is sized into the post-round cap table on day one (so the SEIS investors are pricing into a 90 percent fully diluted basis from the start), or the option pool comes off founders rather than investors at the next round. Specialist accountants flag this on day one and model both options.

Director loans from founders that pre-date the SEIS round have to be either (a) converted to equity before the SEIS round opens, with appropriate accounting, or (b) treated as long-dated debt that will not be repaid from SEIS proceeds within the three-year qualifying period. The choice affects the founder's personal tax position (interest on a director loan is taxable income; a debt-to-equity conversion is a no-cash-out transaction with no immediate personal tax). The accountant models both options against the founder's broader position and drafts whichever route is cleaner.

Secondary sales of founder shares to incoming angels at a SEIS round are sometimes proposed as a way for founders to take some money off the table while still raising fresh investor capital. This does not work. SEIS relief attaches only to new shares issued by the company for cash, not to existing shares transferred from one shareholder to another. A founder secondary in a SEIS round produces no SEIS relief for the buyer and produces a capital gains tax event for the founder. The accepted route is a clean SEIS round on new shares, with founder secondaries deferred to a later round (usually the EIS round or a series A) where the dynamics are different.