Jenson Seed EIS Fund - Clubfinance

14 Jenson Seed EIS FundRisk Factors 15Retention of key directors or employeesSmall businesses are highly dependent on theskills of their management teams. The departureof any of an Investee Company’s directorsand/or key employees or the Fund Manager orJenson’s directors and/or key employees couldhave a material adverse effect on the businessof the Investee Companies.No warranty on valuationsNo warranty is given on any valuationsprovided to Investors that any such valuationis capable of being attained on a realisationof the Investment.Past performanceThe past performance of the FundManager and Jenson and their respectivemanagement teams, or of investmentsmanaged by them, is not necessarily a guideto the future performance of the Fund.1.2 Risks relating to Investorsseeking Tax ReliefsThere are several circumstances in whichan Investor could cease to qualify for anyof the Tax Reliefs offered by the SEIS or EISand as a result any tax which would havebeen payable to HMRC, but for the Investorsobtaining Tax Reliefs, could becomepayable. These circumstances may relate toan Investee Company ceasing to be a SEISor EIS Qualifying Company or the Investorhimself/herself failing or ceasing to qualify forSEIS Relief or EIS Relief.Loss of CGT wipeout reliefCGT wipeout relief under the SEIS could belost if an Investor ceases to be resident in theUnited Kingdom within three years of makingan Investment through the Fund.Receipt of valueAn Investor could cease to qualify for theSEIS Relief or EIS Relief if he/she has receivedvalue from an Investee Company at any timesince its incorporation or within three years ofmaking his/her Investment through the Fund.Payment of a dividend, however, would nottypically be regarded as a receipt of value.Cessation of tradeIf an Investee Company ceases to carry on itsbusiness within three years of an Investment,this could prejudice its qualifying status underthe SEIS or EIS. The situation will be closelymonitored with a view to preserving theInvestee Company’s qualifying status but thiscannot be guaranteed.Failure to meet SEIS or EIS qualifyingrequirementsA failure to meet the qualifying requirementsfor the SEIS or EIS could result in:• the requirement for Investors to repay the 50per cent income tax relief under the SEIS or30 per cent under the EIS income receivedon subscription of shares in the InvesteeCompanies and interest on the same;• a liability to tax on capital gains followinga disposal of an Investment; and• any deferred gain crystallising in respectof an EIS Qualifying Investment or the lossof CGT wipeout relief in respect of SEISQualifying Investments.HMRC approvalIf available during the investment process,provisional approval will be sought fromHMRC that the Investee Companies and theiractivities should qualify under SEIS or EIS, andthat SEIS or EIS claims will be agreed. However,there is no guarantee that HMRC approvalwill not be subsequently withdrawn. In thosecircumstances, contributions will not be returnedto Investors. If HMRC approval is subsequentlywithdrawn, Tax Reliefs would not be available toInvestors or would be withdrawn.Funding requirementsUnder the SEIS rules, an Investee Company inwhich the Fund invests is required to have utilisedin its qualifying trade at least 70% of the amountit raises before the Investors can claim any SEISRelief. In addition, the Investee Company mustuse all the remaining 30% of Investment moniesfor which SEIS Relief has been claimed withinthree years of the Investment being made.If an Investee Company fails to utilise these fundscorrectly, the Investee Company would be inbreach of the SEIS regulations and tax relief maybe unavailable or withdrawn.Under the EIS rules, an Investee Company inwhich the Fund invests is required to have utilisedall the Investment monies (after the deductionof issue costs) within 24 months of the date ofcommencing its trade. If an Investee Companyfails to utilise these funds within this deadline, theInvestee Company would be in breach of theEIS regulations and tax relief may be unavailableor withdrawn. The Fund Manager expectsInvestments to comply with the requirements toutilise their funds within the prescribed limits.Sale within three yearsA sale of an Investment within three yearsor (in the case of the EIS if later) within threeyears of commencing to trade where theInvestee Company was only preparing totrade at the time the Investment was madewill result in the SEIS or EIS income tax reliefavailable upon investment of those sharesbecoming repayable to HMRC and (in thecase of the EIS) any deferred gain would besubject to capital gains tax.The SEIS or EIS Qualifying Investment maybe realised at any timeThe Fund Manager retains complete discretionto realise an Investment at any time, even ifsome or all of the Tax Reliefs relating to thatInvestment may be lost. In making such arealisation, the Fund Manager and Jensonhave no obligation to take into account the taxposition of Investors (individually or generally).