'The pounds 1m limit on the amount of money each company can raise under the scheme is not enough to make it worth putting out a prospectus to invite investments by the public,' said Charles Fry, who runs Johnson Fry, the Business Expansion Scheme specialists.
Mr Fry estimates it would cost about pounds 50,000 to print and mail a prospectus. Johnson Fry would also need to pay commission of about pounds 20,000 to the independent financial advisers who would act as agents in most cases. 'That would mean around 7 per cent of the pounds 1m would be eaten up in the cost of raising the money - before you are giving a return to investors,' he said.
Nevertheless, the City is clearly expecting Johnson Fry to devise some way of making money out of the new scheme - shares in its holding company, LIT Holdings, rose by more than 26 per cent yesterday to 6p.
Observers said it might be possible to offer several companies managed by the same individuals - a chain of pubs or restaurants, say - to reduce the costs of issuing a prospectus to the general public.
However, individual business people are likely to be those most attracted by the Enterprise Investment Scheme, which will give 20 per cent tax relief on up to pounds 100,000 a year invested in EIS companies, and will allow investors to dispose of their shares in the companies without incurring capital gains tax.
This is because, unlike with the BES, investors will be able to act as paid directors of an EIS company.Reuse content