How to Structure a SEIS/EIS Investment Round (Step‑by‑Step)

Structuring an early‑stage funding round is hard enough without the extra layer of tax compliance. Yet in the UK, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) offer tax reliefs that make high‑risk startup investments attractive. If you’re raising pre‑seed or seed funding, you need to understand how to structure a SEIS/EIS investment round properly. A clear SEIS/EIS investment structure not only unlocks investor appetite but also preserves your eligibility for HMRC relief. Failure to follow the rules can result in disallowed relief and angry backers.

This guide is a SEIS/EIS round step-by-step manual. It explains the differences between SEIS and EIS, how to plan your allocation strategy, the sequencing of share issuance, valuation and investor terms, documentation and compliance. You will learn the full SEIS/EIS fundraising structure from planning to issuing certificates. 

Understanding SEIS/EIS Investment Rounds

SEIS and EIS are government‑approved schemes designed to encourage investment in UK startups. SEIS targets very early‑stage companies; EIS applies to slightly more mature ventures. Investors get income tax relief on qualifying shares: 50% for SEIS and 30% for EIS. These incentives de‑risk investments but come with conditions.

The schemes share key features. Both require a permanent establishment in the UK and prohibit trading on a recognised stock exchange. Shares must be ordinary and fully paid; preferential rights to dividends or redemption aren’t allowed. Investors must hold the shares for at least three years and not control more than 30% of the company. Qualifying trades exclude most financial activities and property development.

SEIS vs EIS Comparison

The table demonstrates that SEIS is strictly for the earliest rounds, while EIS offers larger capacity for follow‑on fundraising. You cannot issue EIS shares before SEIS shares, and you cannot issue SEIS shares after EIS.

Step 1: Determine your SEIS/EIS Allocation Strategy

Planning begins with deciding how much capital to raise under each scheme. A SEIS/EIS investment process must start with eligibility checks, statutory limits and future needs.

SEIS and EIS Limits

SEIS allows up to £250k in total funding, which must be used within three years. EIS allows up to £5 million per year and £12 million total (or £20 million for knowledge‑intensive companies). Your company must not exceed asset and employee thresholds before the round.

The SEIS then EIS structure means you may raise SEIS to cover your first 12–18 months, then transition to EIS for larger seed or Series A rounds. If you anticipate reaching scale quickly, plan how EIS funds will follow once SEIS money is spent. You cannot retroactively convert EIS shares to SEIS.

Assessing Company Stage and Eligibility

SEIS targets very young firms: less than three years old, with gross assets below £350k and fewer than 25 employees. Qualifying trades exclude banking, insurance, leasing and other restricted activities. Companies must meet the risk‑to‑capital condition: they must intend to grow and develop, and there must be a significant risk of loss of capital. EIS has more generous thresholds but still requires a permanent establishment in the UK and prohibits trading on a recognised exchange.

Planning for Future Rounds

When learning how to run a SEIS round, think beyond the immediate cash injection. The scheme demands that funds be spent on a qualifying trade within three years. You must spend at least 70% of SEIS money (or trade for four months) before submitting SEIS compliance statements so investors can claim their relief. However, this does not prevent you from issuing EIS shares earlier, since April 2015, there is no spending requirement before issuing EIS shares. Build a timeline that sequences product development and milestones around funding tranches. Model dilution in your cap table so that future EIS investors see a clear equity story.

Step 2: Sequence SEIS and EIS Correctly

Sequencing is the cornerstone of SEIS/EIS sequencing. The law is explicit: companies must allot SEIS shares before any EIS shares are issued. A misstep here can disqualify the entire round.

Why Sequencing Matters for SEIS and EIS?

Under HMRC rules, investors can only claim relief if shares are issued in the right order. SEIS relief applies only if no EIS or VCT shares have been issued previously. While the 70% spending requirement for EIS share issuance was abolished in April 2015, SEIS shares must still be allotted before any EIS shares. The 70% rule now only applies when the company can submit SEIS compliance statements (SEIS1 forms) to HMRC.

Single Round vs Staged Issuance

Some founders attempt a SEIS/EIS investment structure within one closing. This can work if you structure the terms and documents to clearly separate SEIS and EIS tranches. For clarity and fairness, many advisors recommend two closings: issue SEIS shares first, then issue EIS shares after 70% of the SEIS funds have been spent. A single subscription agreement cannot cover both; you need separate documents and board minutes for each tranche. For clarity and fairness, many advisors recommend two closings: issue SEIS shares first, then issue EIS shares after 70% of the SEIS funds have been spent.

Structuring Mixed Rounds

In a mixed round, allocate SEIS to a limited number of investors up to the £250k cap, then allocate EIS shares to the rest. Your SEIS/EIS share issuance documents must specify the number of shares, price per share and class. If your term sheet references a pre‑money valuation that covers both tranches, ensure the share price is the same for SEIS and EIS; you cannot offer SEIS investors preferential pricing. Keep the SEIS subscription date earlier than the EIS date on share certificates and board resolutions.

Step 3: Set a Compliant Valuation Structure

Investors care about valuation; HMRC cares about reasonableness. To preserve relief, you need a fair SEIS/EIS valuation strategy.

Valuation Considerations for SEIS

For SEIS, valuations are typically lower because the company is very young. HMRC does not provide strict guidelines but expects you to justify your valuation using revenue (if any), comparable startups, intellectual property and market traction. Inflated valuations put the “risk‑to‑capital” test at risk. When planning how to structure a SEIS EIS investment round, anchor your SEIS price per share on realistic milestones and ensure investors accept the early‑stage risk.

Valuation Considerations for EIS

EIS rounds usually come after you’ve reached product‑market fit and initial revenues. Valuation may incorporate monthly recurring revenue (MRR), burn rate and pipeline. Document your assumptions in the pitch deck and financial forecasts. HMRC may ask for justification during advance assurance. Use the same share class for SEIS and EIS to avoid creating preferential rights. Your SEIS/EIS investment process must show that all shares are ordinary and rank equally.

Avoiding Common Valuation Pitfalls

Common mistakes include setting the share price too high relative to your company’s maturity or offering a discount to SEIS investors. HMRC may treat a discount as a preference and withdraw relief. Keep your term sheet simple: one share class, one price. If there is a price increase between SEIS and EIS, document why, perhaps due to hitting a milestone after the SEIS close, and ensure HMRC is aware through advance assurance.

Step 4: Prepare SEIS/EIS‑Compatible Investment Terms

The term sheet is the engine of your round. It must align with SEIS/EIS rules, or you risk invalidating relief. This section covers SEIS/EIS investor terms.

Ordinary Shares Only

Both schemes require shares to be ordinary, fully paid and not redeemable. They cannot carry preferential dividend rights or liquidation preferences. Convertible notes, preferred shares or loan notes do not qualify. If you plan to use advanced subscription agreements (ASAs), structure them carefully: they must convert into ordinary shares with no fixed redemption or interest. Seek legal advice before issuing ASAs as part of the SEIS/EIS investment structure.

Permitted and Prohibited Rights

Permitted rights include pre‑emption on new share issues and drag‑along/tag‑along provisions. Prohibited rights include preferential dividends, liquidation preferences, fixed annual returns, guaranteed exit or redemption rights and put options. A common pitfall is offering founder or investor preference shares with enhanced rights, which invalidates relief. Ensure all rights apply equally to SEIS and EIS investors.

Aligning the Term Sheet with SEIS/EIS Requirements

To align your term sheet, state that shares are ordinary and fully paid, confirm there are no loans or guarantees linked to the investment, and ensure there are no reciprocal agreements like buybacks or put options. Spell out investor responsibilities: they must hold the shares for three years and cannot claim both SEIS/EIS relief and rollover relief on the same shares. Your term sheet should reference the requirement for a qualifying trade and compliance with the risk‑to‑capital condition.

Step 5: Prepare the SEIS/EIS Documentation Pack

Documentation is where many founders fail. HMRC requires a detailed pack for advance assurance and compliance statements. A robust SEIS/EIS documentation pack covers the following.

Business Plan

Prepare a business plan that clearly explains your company’s proposition, market, strategy and management. HMRC uses this document to assess growth potential and risk. Include a narrative about how the funds will be used to support your qualifying trade.

Financial Forecasts

Provide detailed forecasts for at least three years. For SEIS, you may have little revenue; emphasise realistic assumptions. For EIS, show revenue growth, cash burn and when you expect to become cash‑flow positive. These forecasts must align with the amount sought and the valuation used in the SEIS/EIS valuation strategy.

Updated Cap Table

Your SEIS/EIS cap table preparation must show current shareholdings, authorised share capital and reserved option pool. Include the number of shares to be issued under SEIS and EIS and the resulting dilution. Use cap table modelling tools to illustrate pre‑money and post‑money structures. Ensure that the table matches the term sheet and subscription agreements.

Use of Funds Statement

For each scheme, specify how the money will be used. SEIS funds might cover research, product development and hiring key personnel. EIS funds might fund sales expansion and internationalisation. HMRC wants to see that funds support a genuine growth strategy and not debt repayment.

Articles of Association

Review and, if necessary, amend your Articles of Association to ensure shares are ordinary and fully paid. Remove any provisions that could be construed as preferential rights. The Articles should allow for multiple share issues without changing class or rights. They should also incorporate drag‑along, tag‑along and pre‑emption rights consistent with SEIS/EIS requirements.

Share Subscription Agreements

Prepare separate subscription agreements for SEIS and EIS tranches. Each must include subscription price, number of shares, investor warranties and conditions precedent. The documents should reference HMRC advance assurance numbers once received. Include a schedule listing the subscribers and the amount each invests. Avoid cross‑referencing SEIS and EIS investors in the same agreement; keep them distinct to respect sequencing.

Risk‑to‑Capital Statement

Since 2018, both schemes require the company to meet a “risk‑to‑capital” condition. Include a statement explaining why there is a significant risk to investors and how the investment will be used to grow the business. Factors include absence of guaranteed returns, untested products and competitive market. Attach this statement to your investor pack.

Step 6: Apply for SEIS/EIS Advance Assurance

Advance assurance is not mandatory but highly recommended. It gives prospective investors confidence that your round is likely to qualify. HMRC notes that it is not a guarantee of relief; investors still need to check their personal eligibility.

SEIS First, then EIS

You can apply for SEIS advance assurance first, followed by EIS or apply for both at the same time if you plan a mixed round. If you apply simultaneously, ensure the applications clearly separate the tranches and confirm that EIS shares will only be issued after SEIS requirements are met. Provide all required documents: business plan, financial forecasts, share classes, Articles of Association and proposed investor list.

What HMRC Evaluates

HMRC looks at your eligibility, the rights attached to the shares, whether the company intends to grow and develop and whether the investment is at risk. They also review the quality of documentation, forecasts and use‑of‑funds statement. Advance assurance letters typically take four to six weeks. File them with your investor pack and reference them in subscription agreements.

Step 7: Finalise SEIS/EIS Investor Commitments

Once you have advance assurance and secure commitments from investors, this stage addresses SEIS/EIS investor terms and ensures that each investor is eligible.

Confirm the Eligibility of Each Investor

Investors must be UK taxpayers to claim relief and cannot be employees or directors receiving a salary (excluding some exceptions). They cannot control more than 30 % of the company’s voting rights or own more than 30% of shares after the round. Investors must not have linked loans or guarantees; any arrangement that reduces their risk of loss disqualifies relief.

Prepare SEIS and EIS Subscription Packs

Send separate subscription packs to SEIS and EIS investors. Each pack should contain the subscription agreement, Articles of Association, risk‑to‑capital statement, share certificates, HMRC advance assurance letter and investor guidance. A welcome letter should remind investors to hold the shares for at least three years to maintain the relief.

Ensure no Disqualifying Arrangements.

Watch for side agreements that might invalidate relief: guaranteed buybacks, put options, preference shares, loans used to fund the investment or reciprocal investments. If investors are also providing loans, make sure these are separate transactions with market terms. Document board minutes approving each share issue and confirm that cash has been received before issuing shares.

Step 8: Issue SEIS Shares First, then EIS Shares

Once investor funds are collected and board approvals secured, issue the shares. Your objective is to follow the SEIS and EIS structure precisely.

Required Sequencing for Compliance

Issue SEIS shares first and record the transaction in the board minutes. Share certificates should be dated accordingly. EIS shares can be issued immediately after SEIS shares are allotted; there is no spending or time requirement before issuing EIS shares (this rule was abolished in April 2015). However, do not issue both share classes on the same day to ensure clear sequencing. Note: the 70% spending or four-month trading requirement applies only to when you can submit SEIS1 compliance statements to HMRC, not to when you can issue EIS shares.

Filing SH01 Forms

Within 30 days of each share issue, you must file an SH01 form with Companies House. The form records the number of shares allotted, the nominal value and the share class. Include board minutes authorising the allotment. File separate SH01 forms for SEIS and EIS tranches. Pay any stamp duty if applicable.

Updating the Cap Table

After issuing shares, update your cap table to reflect new share ownership. Record the number of shares held by each investor and the date of allotment. Use the same modelling tools you used at the planning stage. Keep the cap table consistent with your Companies House filings and subscription agreements.

Step 9: Maintain Records for Post‑Investment Compliance

Compliance does not end when funds are received. Investors can only claim tax relief after they submit SEIS1 and EIS1 compliance statements and they receive SEIS3/EIS3 certificates. This phase is part of the ongoing SEIS/EIS investment process.

SEIS1 and EIS1 Forms

After you have spent at least 70% of SEIS funds or have been trading for four months, file SEIS1 forms to HMRC. 

Note: this requirement applies to compliance statements, not to when EIS shares can be issued. 

For EIS, file EIS1 once funds are spent or after four months of trade. HMRC will send SEIS3 and EIS3 certificates to you to pass on to investors, who must then claim their relief. Do not issue SEIS/EIS certificates until you receive them from HMRC; backdating certificates is prohibited.

Record‑Keeping Requirements

Maintain copies of all investor communications, signed agreements, board minutes, bank statements showing receipt of funds, evidence of spending and any correspondence with HMRC. Good records support a clean audit and facilitate filing future EIS rounds. Keep documents for at least seven years.

Monitoring Compliance After the Round

Ensure the company continues to meet qualifying trade requirements for at least three years after the share issue. Do not return capital to investors during that time. Use funds for the stated purposes and avoid prohibited activities such as acquiring subsidiaries not engaged in qualifying trades. Notify HMRC if there are any substantial changes in your trade or share structure.

Common Mistakes When Structuring SEIS/EIS Rounds

Mistakes can be costly. Below are recurring errors and how to avoid them.

Mixing SEIS/EIS Shares Incorrectly

Issuing SEIS and EIS shares on the same day or using the same subscription documents is a common error. Always keep them separate. Even in a single funding round, separate the tranches and issue SEIS shares first.

Non‑Compliant Share Rights

Preferential dividends, liquidation preferences or redemption rights are disallowed. Some founders inadvertently grant these rights through side letters or investor protection clauses. Keep your share class clean and simple.

Incorrect Valuation Alignment

Setting an unrealistic valuation or different prices for SEIS and EIS shares can trigger HMRC questions. Align valuations with the company stage and ensure the price per share is consistent unless there is a clear milestone between tranches.

Multiple Rounds without Updated Assurance

Advance assurance applies only to the round described in your application. If you raise additional rounds later, apply again. Don’t assume one assurance covers future EIS rounds; conditions may change, and HMRC may update its view.

Example Structures for SEIS/EIS Rounds

Scenarios illustrate how to run compliant rounds in practice.

Scenario 1: SEIS Pre‑Seed Followed by EIS Seed

A company raises £200k under SEIS at a £2 million pre‑money valuation. The funds support product development and hiring. After 10 months, 70% of the SEIS money is spent and the product launches. The company applies for EIS advance assurance and raises £1 million at a £6 million pre‑money valuation. Shares are issued on separate dates; investors receive SEIS3 and EIS3 certificates. The company maintains growth and continues to qualify.

Scenario 2: Mixed Round with SEIS and EIS Investors

In this scenario, a £500k seed round is structured as £250k under SEIS and £250k under EIS. The company issues SEIS shares first, with a one‑day gap, using separate subscription agreements. Both tranches share the same share price and rights. The board minutes and share certificates clearly show the sequencing. Advance assurance for both schemes is obtained ahead of the round. After spending 70% of the SEIS funds, the company files SEIS1 and EIS1 forms.

Scenario 3:  EIS Top‑Up Round after SEIS Milestones

An early‑stage company raises the full £250k SEIS allocation to build a prototype. After two years, the company launches its product and has paying customers. It raises a £2 million EIS round to scale marketing and operations. Because the EIS raise occurs within seven years of the company’s first commercial sale, it remains eligible. The company applies for new advance assurance and ensures that all previous investors continue to hold their shares. The new round uses the same ordinary share class without preferences.

How Undo Capital Helps Structure SEIS/EIS Rounds

Undo Capital builds tools that automate complex fundraising workflows. When you need to know how to structure a SEIS/EIS investment round, the platform streamlines cap table modelling, documentation and compliance.

• Cap table modelling – simulate dilution across SEIS and EIS tranches and generate investor‑ready charts.
• Documentation automation – auto‑populate business plans, subscription agreements and risk‑to‑capital statements based on templates.
• Eligibility checks – ensure your company and investors meet criteria for SEIS/EIS, with alerts when thresholds are exceeded.
• Sequencing validation – verify that share issuance dates and cash spending satisfy the 70% rule and sequencing.
  
• Compliance monitoring – track use of funds, board minutes and record‑keeping in one dashboard.

The platform reduces errors and saves time. It also provides knowledge articles and checklists so you can learn how to run a SEIS round or how to run an EIS round without hiring expensive advisors. See the SEIS advance assurance guide and cap table modelling tips on the Undo Capital blog for deeper dives.

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