(5) If the investment, so far as it is in qualifying debt investments,
involves making the second of multiple advances covered by the
debenture or debentures concerned, or a subsequent one of those
advances, for the purposes of this Part it is made—

(a) 5when the amount of that advance is fully advanced in cash, or

(b) if later—

(i) when the social enterprise issues the debenture or
debentures to the investor, or

(ii) in a case where there is to be no such issuing, when
10the debenture or debentures, so far as relating to all of
those advances, takes effect between the social
enterprise and the investor.

(6) For the purposes of subsections (3) to (5) “debenture” includes any
instrument creating or acknowledging indebtedness.

257KC 15 “Shorter applicable period” and “longer applicable period”

(1) In this Part “the shorter applicable period” and “the longer
applicable period” have the meaning given by this section.

(2) The shorter applicable period begins with the investment date.

(3) The longer applicable period begins with—

(a) 20the day on which the social enterprise is—

(i) incorporated (if it is a body corporate), or

(ii) established (in any other case), or

(b) if later, the day whose first anniversary is the investment
date.

(4) 25Each of the periods ends with the third anniversary of the investment
date.

CHAPTER 3 Eligibility: conditions relating to the investor and the investment

257L Investment to be in new shares or new qualifying debt investments

(1) At all times during the shorter applicable period, the investment
30must be in—

(a) shares that meet conditions A and B and are issued to the
investor by the social enterprise in return for the amount
invested, or

(b) qualifying debt investments of which the investor is the
35holder in return for advancing the amount invested to the
social enterprise.

(2) Condition A is that the shares must carry none of the following—

(a) a right to a return which, or any part of which, is a fixed
amount;

(b) 40a right to a return which, or any part of which, is at a fixed
rate;

(c) a right to a return which, or any part of which, is otherwise
fixed by reference to the amount invested;

(d) a right to a return which, or any part of which, is fixed by
reference to some other factor that is not contingent on
successful financial performance by the social enterprise;

(e) a right to a return at a rate greater than a reasonable
5commercial rate.

(3) Condition B is that, for the purpose of determining the amounts due
in respect of the shares to their holder in the event of the winding-up
of the social enterprise—

(a) those amounts rank after all debts of the social enterprise
10except any due to holders of qualifying debt investments in
the social enterprise in respect of their qualifying debt
investments, and

(b) the shares do not rank above any other shares in the social
enterprise.

(4) 15In this Part “qualifying debt investments”, in relation to the social
enterprise, means any debentures of the social enterprise in respect
of which the following conditions are met—

(a) neither the principal of the debt concerned, nor any return on
that, is charged on any assets,

(b) 20the rate of any such return is not greater than a reasonable
commercial rate of return, and

(c) in the event of the winding-up of the social enterprise and so
far as the law allows, any sums due in respect of the debt
(whether principal or return)—

(i) 25are subordinated to all other debts of the social
enterprise except sums due in the case of other
unsecured debentures of the social enterprise which
rank equally,

(ii) rank equally, if there are shares in the social
30enterprise and they all rank equally among
themselves, with amounts due to share-holders in
respect of their shares, and

(iii) rank equally, if there are shares in the social
enterprise and they do not all rank equally, with
35amounts due in respect of their shares to the holders
of shares that do not rank above any other shares.

(5) The condition in subsection (3)(a) or (4)(c)(i) is met even if the sums
concerned do not rank after debts which are postponed—

(a) by rules under section 411 of the Insolvency Act 1986, or

(b) 40by or under any other enactment.

(6) For the purposes of subsection (4) “debenture” includes any
instrument creating or acknowledging indebtedness.

257LA Condition that the amount invested must have been paid over

(1) So far as the investment is in shares—

(a) 45the shares must be subscribed for wholly in cash, and

(b) must be fully paid up at the time they are issued.

(2) If the investment, so far as it is in qualifying debt investments,
involves making—

(a) the only advance covered by the debenture or debentures
concerned, or

(b) one of multiple advances covered by the debenture or
debentures concerned,

5the full amount of that advance must have been advanced wholly in
cash by the time the investment is made.

(3) For the purposes of this section—

(a) shares are not fully paid up, or

(b) the full nominal amount of qualifying debt investments has
10not been advanced,

if there is any undertaking to pay cash to any person at a future time
in respect of the acquisition of the shares or investments.

(4) For the purposes of subsection (2) “debenture” includes any
instrument creating or acknowledging indebtedness.

257LB 15 The no pre-arranged exits requirements

(1) There must not at any time in the shorter applicable period be any
arrangements in existence for the investment to be redeemed, repaid,
repurchased, exchanged or otherwise disposed of in that period.

(2) The issuing arrangements for the investment must not include—

(a) 20arrangements for or with a view to the cessation of any trade
which is being or is to be or may be carried on by the social
enterprise or a person connected with the social enterprise, or

(b) arrangements for the disposal of, or of a substantial amount
(in terms of value) of, the assets of the social enterprise or of
25a person connected with the social enterprise.

(3) The arrangements referred to in subsection (2)(a) and (b) do not
include any arrangements applicable only on the winding-up of a
company except in a case where—

(a) the issuing arrangements include arrangements for the
30company to be wound up, or

(b) the arrangements are applicable on the winding-up of the
company otherwise than for genuine commercial reasons.

(4) In this section “the issuing arrangements” means—

(a) the arrangements under which the investor makes the
35investment, and

(b) any arrangements made before, and in relation to or in
connection with, the making of the investment by the
investor.

257LC The no risk avoidance requirement

(1) 40There must not at any time in the shorter applicable period be any
arrangements in existence the main purpose or one of the main
purposes of which is (by means of any insurance, indemnity,
guarantee, hedging of risk or otherwise) to provide partial or
complete protection for the investor against what would otherwise
45be the risks attached to making the investment.

(2) The arrangements referred to in subsection (1) do not include any
arrangements which are confined to the provision—

(a) for the social enterprise itself, or

(b) if the social enterprise is a parent company that meets the
trading requirement in section 257MJ(2)(c)—

(i) for the social enterprise itself,

(ii) 5for the social enterprise itself and one or more of its
subsidiaries, or

(iii) for one or more of the subsidiaries of the social
enterprise,

of any such protection against the risks arising in the course of
10carrying on its business as might reasonably be expected to be
provided in normal commercial circumstances.

257LD The no linked loans requirement

(1) No linked loan is to be made by any person, at any time in the longer
applicable period, to the investor or an associate of the investor.

(2) 15In this section “linked loan” means any loan which—

(a) would not have been made, or

(b) would not have been made on the same terms,

if the investor had not made the investment, or had not been
proposing to do so.

(3) 20References in this section to the making by any person of a loan to the
investor or an associate of the investor include—

(a) references to the giving by that person of any credit to the
investor or any associate of the investor, and

(b) references to the assignment to that person of a debt due from
25the investor or any associate of the investor.

257LE The no tax avoidance requirement

The investment must not be made as part of any arrangements the
main purpose or one of the main purposes of which is the avoidance
of tax.

257LF 30 Restrictions on being an employee, partner or paid director

(1) This section applies—

(a) to the investor, and

(b) to any individual who is an associate of the investor.

(2) An individual to whom this section applies must not at any time in
35the longer applicable period be—

(a) an employee of—

(i) the social enterprise,

(ii) any subsidiary of the social enterprise,

(iii) a partner of the social enterprise, or

(iv) 40a partner of any subsidiary of the social enterprise,

(b) a partner of—

(i) the social enterprise, or

(ii) any subsidiary of the social enterprise,

(c) a trustee of—

(i) 45the social enterprise, or

(ii) any subsidiary of the social enterprise, or

(d) a remunerated director of—

(i) the social enterprise, or

(ii) a linked company.

(3) 5In this section—

• “linked company” means—

  (a)

  a subsidiary of the social enterprise,

  (b)

  a company which is a partner of the social enterprise,
  or

  (c)

  10a company which is a partner of a subsidiary of the
  social enterprise;

• “related person” means—

  (a)

  the social enterprise,

  (b)

  a person connected with the social enterprise,

  (c)

  15a linked company of which the individual is a
  director, or

  (d)

  a person connected with such a company;

• “subsidiary”, in relation to the social enterprise, means a
  company which at any time in the longer applicable period is
  20a 51% subsidiary of the social enterprise (and such a
  company is therefore a subsidiary of the social enterprise for
  the purposes of this section even at times when it is not a 51%
  subsidiary of the social enterprise).

(4) For the purposes of subsection (2)(d), an individual who is a director
25of the social enterprise or a linked company is “remunerated” if the
individual (or a partnership of which the individual is a member)—

(a) receives at any time in the longer applicable period a
payment from a related person, or

(b) is entitled to receive a payment from a related person in
30respect of any time in the longer applicable period.

(5) For the purposes of subsection (4) the following are ignored—

(a) any payment or reimbursement of travelling or other
expenses wholly, exclusively and necessarily incurred by the
individual in the performance of the individual’s duties as a
35director,

(b) any interest which represents no more than a reasonable
commercial return on money lent to a related person,

(c) any dividend or other distribution which does not exceed a
normal return on the investment,

(d) 40any payment for the supply of goods which does not exceed
their market value,

(e) any payment of rent for any property occupied by a related
person which does not exceed a reasonable and commercial
rent for the property,

(f) 45any necessary and reasonable remuneration which—

(i) is paid for services, rendered to a related person in the
course of a trade or profession, that are not secretarial
services and are not managerial services and are not

services of a kind provided by the person to whom
they are rendered, and

(ii) is taken into account in calculating for tax purposes
the profits of that trade or profession, and

(g) if condition A is met and (where applicable) condition B is
5also met, any other reasonable remuneration (including any
benefit or facility) received by the individual, or to which the
individual is entitled, for services rendered by the
individual—

(i) to the company (whether the social enterprise or a
10linked company) of which the individual is a director,
and

(ii) in the individual’s capacity as a director of that
company.

(6) Condition A is that the investor made the investment, or previously
15made another investment meeting the requirement in section
257L(1), at a time (“the qualifying time”) when—

(a) the requirements of this section and sections 257LG and
257LH (even if the three sections were not then in force)
would have been met even if each other reference in the three
20sections to any time in the longer applicable period were a
reference to any time before the qualifying time, and

(b) the investor had never been involved in carrying on (whether
on the investor’s own account or as a partner, director or
employee) the whole or any part of the trade, business or
25profession carried on by the social enterprise or a subsidiary
of the social enterprise.

(7) Condition B is that—

(a) the investment did not meet condition A (but a previous
investment did), and

(b) 30the investment was made before the third anniversary of the
date when the investor last made an investment in the social
enterprise which met condition A.

(8) References in this section to an individual in the individual’s
capacity as a director of a company include, if the individual is both
35a director and an employee of the company, references to the
individual in the individual’s capacity as an employee of the
company but, apart from that, an individual who is both a director
and an employee of a company is treated for the purposes of this
section as a director, and not an employee, of the company.

(9) 40In subsections (2), (4) and (5) “director” does not include a trustee of
a charity that is a trust.

257LG The requirement not to be interested in capital etc of social enterprise

(1) This section applies—

(a) to the investor, and

(b) 45to any individual who is an associate of the investor.

(2) In this section “related company” means—

(a) the social enterprise, or

(b) a company which at any time in the longer applicable period
is a 51% subsidiary of the social enterprise (and such a
company is therefore a related company for the purposes of
this section even at times when it is not a 51% subsidiary of
5the social enterprise).

(3) There must not be any time in the longer applicable period when an
individual to whom this section applies has control of a related
company.

(4) There must not be any time in the longer applicable period when an
10individual to whom this section applies directly or indirectly
possesses or is entitled to acquire—

(a) more than 30% of the ordinary share capital of a related
company,

(b) more than 30% of the loan capital of a related company, or

(c) 15more than 30% of the voting power in a related company.

(5) For the purposes of subsections (3) and (4) ignore any shares in a
related company held by the individual, or by an associate of the
individual, at a time when that company—

(a) has not issued any shares other than subscriber shares, and

(b) 20has not begun to carry on, or make preparations for carrying
on, any trade or business.

(6) For the purposes of this section, the loan capital of a company—

(a) is treated as including any debt incurred by the company—

(i) for any money borrowed or capital assets acquired by
25the company,

(ii) for any right to receive income created in favour of the
company, or

(iii) for consideration the value of which to the company
was (at the time when the debt was incurred)
30substantially less than the amount of the debt
(including any premium on it), and

(b) is treated as not including any debt incurred by the company
by overdrawing an account with a person carrying on a
business of banking if the debt arose in the ordinary course of
35that business.

(7) For the purposes of this section—

(a) an individual is treated as entitled to acquire anything which
the individual is entitled to acquire at a future date or will at
a future date be entitled to acquire, and

(b) 40there is attributed to any individual any rights or powers of
any other person who is an associate of the individual.

257LH Requirement for no collusion with a non-qualifying investor

There must not at any time in the longer applicable period be any
arrangements—

(a) 45as part of which—

(i) the investor makes the investment, or

(ii) the investor, or an individual who is an associate of
the investor, makes any other investment in the social
enterprise,

(b) which provide for a person to make an investment in a
5company other than the social enterprise, where that person
is not the individual (“A”) who invests as mentioned in
paragraph (a), and

(c) to which there is a party (whether or not A) who is an
individual in relation to whom not all of the requirements in
10sections 257LF and 257LG would be met if—

(i) references in those sections to the investor were read
as references to that individual, and

(ii) references in those sections to the social enterprise
were read as references to the company mentioned in
15paragraph (b).

CHAPTER 4 Eligibility: conditions relating to the social enterprise

Conditions relating to the social enterprise

257MA The amount raised from investments potentially eligible for relief

(1) The amount invested must not be more than the amount given by—

20

where—

• T is the total of any scheme investments made in the aid period,

• M is the total of any de minimis aid, other than scheme
  investments, that is granted during the aid period—

  (a)

  25to the social enterprise, or

  (b)

  to a qualifying subsidiary of the social enterprise at a
  time when it is such a subsidiary,

• RCG is the highest rate at which capital gains tax is charged in
  the aid period, and

• 30RSI is the highest SI rate in the aid period.

(2) In subsection (1) “the aid period” is the 3 years—

(a) ending with the day on which the investment is made, but

(b) in the case of that day, including only the part of the day
before the investment is made.

(3) 35In this section “de minimis aid” means de minimis aid which fulfils
the conditions laid down—

(a) in Commission Regulation (EU) No. 1407/2013 (de minimis
aid) as amended from time to time, or

(b) in any EU instrument from time to time replacing the whole
40or any part of that Regulation.

(4) For the purposes of subsection (1), the amount of any de minimis aid
is the amount of the grant or, if the aid is not in the form of a grant,

the gross grant equivalent amount within the meaning of that
Regulation as amended from time to time.

(5) For the purposes of this section—

(a) a scheme investment is an investment in respect of which the
social enterprise (at any time) provides a compliance
5statement, and

(b) section 257KB applies for the purpose of determining when a
scheme investment is made, but as if references in that section
to this Part, the investment and the investor were
(respectively) to this section, the scheme investment and the
10person making the scheme investment.

(6) For the purposes of subsection (1), if—

(a) the investment or any scheme investment is made, or

(b) any aid is granted,

in sterling or any other currency that is not the euro, its amount is to
15be converted into euros at an appropriate spot rate of exchange for
the date on which the investment is made or the aid is paid.

257MB Power to amend limits on amounts raised

(1) The Treasury may by order amend this Part for the purpose of—

(a) altering any limit for the time being imposed by this Part on
20amounts that a social enterprise may raise through
investments eligible for SI relief;

(b) complying with any undertakings given to the European
Commission, or any conditions imposed by the Commission,
in connection with an application for State aid approval.

(2) 25In subsection (1) “State aid approval” means approval that the
provision made by this Part, so far as it constitutes the granting of aid
to which any of the provisions of Article 107 or 108 of the Treaty on
the Functioning of the European Union applies, is or would be
compatible with the internal market, within the meaning of Article
30107 of that Treaty.

(3) An order under this section may make incidental, supplemental,
consequential, transitional or saving provision.

(4) An order under this section may not be made unless a draft of the
instrument containing it has been laid before, and approved by a
35resolution of, the House of Commons.

257MC The gross assets requirement

(1) If the social enterprise is a single company, the value of its assets—

(a) must not exceed £15 million immediately before the
investment is made, and

(b) 40must not exceed £16 million immediately after the
investment is made.

(2) If the social enterprise is a parent company, the value of the group
assets—

(a) must not exceed £15 million immediately before the
45investment is made, and

(b) must not exceed £16 million immediately after the
investment is made.

(3) For the purposes of subsection (2), the value of the group assets is the
sum of the values of the gross assets of each of the members of the
5group, ignoring any assets that consist in rights against, or shares in
or securities of, another member of the group.

257MD The unquoted status requirement

(1) At the beginning of the shorter applicable period—

(a) the social enterprise must not be a quoted company,

(b) 10there must be no arrangements in existence for the social
enterprise to become a quoted company, and

(c) there must be no arrangements in existence for the social
enterprise to become a subsidiary of a company (“the new
company”) by virtue of an exchange of shares, or shares and
15securities, if arrangements have been made with a view to the
new company becoming a quoted company.

(2) For the purpose of this section, a company is a “quoted company” if
any shares, stocks, debentures or other securities of the company
are—

(a) 20listed on a recognised stock exchange,

(b) listed on a designated exchange in a country outside the
United Kingdom, or

(c) dealt in outside the United Kingdom by such means as may
be designated.

(3) 25In subsection (2)(b) and (c) “designated” means designated by an
order made by the Commissioners for Her Majesty’s Revenue and
Customs for the purposes of that provision.

(4) An order made for the purposes of subsection (2)(b) may designate
an exchange by name, or by reference to any class or description of
30exchanges, including a class or description framed by reference to
any authority or approval given in a country outside the United
Kingdom.

(5) The arrangements referred to in subsection (1)(b), and the second
arrangements referred to in subsection (1)(c), do not include
35arrangements in consequence of which any shares, stocks,
debentures or other securities of the social enterprise or the new
company (as the case may be) are at any subsequent time—

(a) listed on a stock exchange that is a recognised stock exchange
by virtue of an order under section 1005(1)(b), or

(b) 40listed on an exchange, or dealt in by any means, designated
by an order made for the purposes of subsection (2)(b) or (c),

if the order was made after the beginning of the shorter applicable
period.

257ME The control and independence requirements

(1) 45The social enterprise must not at any time in the shorter applicable
period control (whether on its own or together with any person
connected with it) any company which is not a qualifying subsidiary
of the social enterprise.