Share options explained: the essential guide for UK startups
Want to offer your team equity in your company? Our guide covers the facts about share options: how and when to set up a...
The EMI share option scheme is the best, most mutually beneficial way to distribute equity to your UK team members. But it takes time and forward-planning to get your scheme correctly set up and approved by HMRC before you can grant the options.
With all the other things on your to-do list, the last thing you want is to dive headfirst into a bureaucratic rabbit hole without knowing how deep it goes. That’s why we’ve written this short guide to the EMI scheme timescales you need to know about.
Planning to fundraise at the same time? Skip down to this section to find out how taking investment affects your EMI option scheme.
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On SeedLegals, we make it simple to create the structure and choose the rules for your EMI option scheme. The guided workflow takes you through every step in the process – and you can get expert help from our team whenever you need it.
With SeedLegals, it’s easy to create, sign and store every document you and your team members need. We’ve provided super-fast, super-affordable legal support for EMI schemes for thousands of companies, so we know what works … and where the potential problems are.
After you’ve set the scheme rules, you’ll need to hold a Board meeting to adopt them. The SeedLegals workflow provides a Board Resolution for this.
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Before you grant EMI options, you need to agree with HMRC how much shares in your company are worth, and how much of a discount your employees can get on them.
You want the lowest EMI valuation possible, so your employees can benefit from buying at a low exercise price and selling at a (hopefully) much higher price.
The SeedLegals workflow will guide you through the information and supporting documentation that HMRC requires. This generally takes one day to complete but sometimes it takes a little longer to gather the supporting documents. Our team reviews your application in two to three working days, and after it’s finalised, you can generate the application documents on our platform to send to HMRC.
We suggest allowing one week to prepare your EMI valuation.
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We’ve automated the EMI Valuation process and made it possible for you to generate a sophisticated EMI report within minutes. You answer a straightforward questionnaire, and from that our advanced algorithm builds your EMI Valuation report based on your company’s financials, last price per share paid, and other factors.
Typically, HMRC takes between four and six weeks to respond to EMI valuations.
After you receive their response, you’ll have a set time to agree or negotiate with HMRC’s decision. The exact timeline you get here depends on each HMRC valuer – some will give you a month and others around two to three weeks.
Your dedicated SeedLegals EMI expert will be on hand to help you defend the valuation you submitted if needed.
After you have confirmed the EMI valuation with HMRC, it only remains valid for 90 days so you need to grant options to your employees within that time frame. It’s important that you grant your options before any term sheets or changes in your share capital are made as these can invalidate your valuation.
Issuing new shares (to, say, an investor) can invalidate an EMI valuation you’ve agreed with HMRC if you have not disclosed your plans to issue shares or take in investment in your EMI valuation. This means that if you’re planning a funding round at the same or similar time as setting up an option scheme, you need to time things carefully or be willing to submit another EMI valuation before granting options.
This means you have two courses of action open to you:
It is important that you disclose any upcoming ASA investments or conversions in your EMI Valuation application as these are significant events and can impact your valuation. We generally recommend you action these before you submit your valuation or after your options have been granted.
My advice would be that if you reckon it’s at least 6 weeks until you’re ready to wrap up your round, you might want to go with the first option above, to get the lowest possible EMI valuation.
If it turns out your round closes faster than you imagined, or HMRC takes longer than you want, in the worst case you’ll need to do another EMI valuation, which isn’t such a big deal in terms of the admin.
Co-founder and CEO,