Understanding Connected Person SEIS: Rules & Eligibility

The Seed Enterprise Investment Scheme (SEIS) provides significant benefits to investors. However, understanding the concept of being ‘connected’ to the company is vital for determining eligibility. If an investor qualifies as a connected person, they lose access to Connected Person SEIS. Therefore, investors must understand what makes them a connected person and how this affects their SEIS eligibility.

Definition of a ‘Connected Person’

Under SEIS rules, a person becomes ‘connected’ to the company when they exert significant influence over it. This influence can appear through shareholding, voting rights, or specific familial relationships. 

The primary criteria for being deemed connected include:

Shareholding and Voting Rights:

An investor becomes connected if they hold more than 30% of the company’s shares or voting rights. This threshold stops individuals with substantial control over the company from accessing Connected Person SEIS.

Employment Status:

If the investor works as an employee of the company, they are considered connected. However, serving as a director does not automatically make them connected. As long as the director avoids significant shareholding or voting rights, they remain eligible. Investors must follow SEIS Investment Rules carefully to ensure compliance.

Family Connections:

Close relatives, including spouses, parents, children, and siblings, can make an investor connected if their combined family shareholding exceeds 30%. This rule stops Connected Person SEIS from benefiting individuals who could exert undue influence over the company.

Understanding these criteria helps ensure Connected Person benefits genuine external investors.

Implications for Eligibility

If the investor qualifies as connected, they cannot claim on their investment. This rule keeps Connected Person SEIS exclusive to external investors who take on financial risk.

To navigate these complexities, SEIS Expert Assistance provides invaluable guidance. Advisors assess the connection status of investors and ensure compliance with SEIS regulations.

Worked Examples

Example 1: Shareholding and Voting Rights

Scenario: John invests in an SEIS-eligible company and acquires 25% of the shares.

Outcome: John does not qualify as connected and remains eligible for Connected Person SEIS.

Change: If John buys additional shares, increasing his total shareholding to 35%, he becomes connected and loses eligibility for Connected Person SEIS from that point onward.

Example 2: Employment Status

Scenario: Sarah works as a director of an SEIS-eligible company with a 10% shareholding.

Outcome: Sarah does not qualify as connected because her directorship alone does not make her connected. She remains eligible for Connected Person SEIS.

Change: If Sarah transitions to an employee role within the company, she becomes connected and loses eligibility for Connected Person SEIS.

Example 3: Family Connections

Scenario: Michael, his wife, and his brother each hold 15% of the shares in an SEIS-eligible company.

Outcome: Individually, none of them qualify as connected. However, their collective family shareholding adds up to 45%, which makes them connected and ineligible for Connected Person SEIS.

Get Expert Assistance!

Understanding the connection rules helps investors maximise the benefits of SEIS investments. At Apex Accountants, we guide you through Connected Person SEIS rules and align your investments with SEIS Investment Rules. Our team of experienced advisors at SEIS Expert Assistance will help you navigate the regulations and safeguard your eligibility.

For tailored advice to meet SEIS requirements, consult our experts today. Protect your SEIS Tax Planning and stay confident with Apex Accountants. Contact us now to create a comprehensive strategy that meets your needs.