Employee share option schemes

Employee share option schemes are a way to incentivise and reward your team for their hard work.

When you create a share option scheme or plan, you create the rules and conditions under which your team members can earn options.

Options give your team the right to buy shares in your company in the future at a pre-agreed price (the ‘strike’ price).

There are many reasons why companies choose to reward their team with equity via shares options and not shares. You can find full details in shares vs options: what’s the difference?

When employees hold equity in the company they work for, their interests are directly tied to the company’s. When the company does well and its share price increases, so do the value of the employee’s shares. It gives the employee a personal stake in the company - and a reason to stay as the company grows.

Equity compensation is a way to motivate employees, retain and nurture talent and reward top performers.

On SeedLegals it’s easy - and we’ll help you at every step.
First, decide whether you need an EMI scheme or an Unapproved scheme (see below).

The exact steps will depend on the scheme you choose.

In general, to set up a scheme on SeedLegals, you need to:
- Create your option pool
- Create your option scheme
- Choose vesting and exercise rules
- Pass a board resolution to adopt the option scheme
- Grant the options
- Enter your team members’ details and details of the option grant
- Send out the option agreements to your team for signatures

For more information, see how to set up an Unapproved scheme on SeedLegals or how to set up an EMI scheme on SeedLegals.

To get started, log in or register and go to Share Options.

There’s built-in guidance but if you need any help, hit the chat button to message our experts.

On SeedLegals you can create two types of employee share option scheme: EMI and Unapproved.

The EMI scheme is more tax-efficient for both your company and your team members, but you can only offer EMI options to your full-time, UK-based employees. Because it’s ‘approved’ by HMRC, there are various criteria the company and the employee must meet to be eligible. You can see those criteria in detail in our EMI share options explained article.

It requires more effort and admin to set up an EMI scheme, because you have to submit a company valuation to HMRC before you grant any options. This sets the strike price your team members pay to exercise their options. On SeedLegals, you can buy access to our EMI Valuation report tool as an optional extra, which helps get you the best possible price.

You also need to notify HMRC after you’ve granted options as well as sending an annual report. If you create your EMI scheme with SeedLegals, we’ll help you at every stage of this process.

The Unapproved scheme is so-called because it doesn’t require HMRC approval. This makes the Unapproved scheme less tax efficient - but much more flexible. Through an Unapproved scheme, you can grant options to a greater number of team members, including consultants, advisors, contractors and your international staff.

Many companies have both an EMI and an Unapproved option scheme to cover different categories of team members.

For more detail about these two types of option schemes, see this EMI or Unapproved article.

EMI share option scheme
For your team

• No tax liability on grant
• Usually no tax liability on exercise
• When the employee sells their shares, they can usually use Business Asset Disposal Relief sooner and pay a lower rate of Capital Gains Tax

For your company

• No NIC due when the options are exercised
• Possibility of a Corporation Tax deduction when the options are exercised

Unapproved share option scheme
For your team

• No tax liability on grant for employees and directors
• Tax on exercise
• Tax on sale

For your company

• Possibility of a Corporation Tax deduction when the options are exercised

Tax, as ever, is a complicated area. For more detail, see our article on option scheme tax implications. Please note that we aren’t authorised to provide personalised tax advice, so we suggest you consult an accountant for specific queries.

The SeedLegals Options Dashboard makes it easy for your team to understand the value of their options.

When you share the Option Agreement with a team member, they will get an invitation and a link to create their own SeedLegals account.

On the dashboard, they will see the vesting status of their allocation, their Option Agreement, Option Certificate and Share Certificate (after they have exercised their options).

As well as this, they will have access to the Options Calculator. This helps answer two common questions: the potential value of their options based on a given valuation, and how much it would cost to exercise a given number of their vested options.

For more information about this helpful tool, see our article on the Options Dashboard and Calculator.

We don't require FCA authorisation to provide you with customisable option schemes and grant agreements.

This is because we don't hold any assets for you or your option holders. When your option holders exercise their options (to convert them into shares), they pay your company directly - this payment does not go via SeedLegals, and your option holders become shareholders outright.

The FCA (Financial Conduct Authority) regulates financial services providers such as banks, building societies, payments providers and insurers. Companies and individuals must be authorised or registered by the FCA to carry out certain activities in the UK - for example, holding money in bank accounts, giving financial advice, offering loans or mortgages and so on.

Although we aren’t regulated by the FCA, we hold ourselves to the same high standards the FCA expects of the companies they regulate. For example:

• we are honest, fair and effective so you get a fair deal
• we conduct our business with integrity, skill, care and diligence
• our communications are fair, clear and not misleading

View the full list at the FCA website: Principles for businesses