Share options explained: the essential guide for UK startups
Understand what share options are, how to set up a scheme and how tax works on share options as we unpack all the import...
At SeedLegals we recommend companies issue their employees with EMI share options that convert into non-voting shares.
There are two reasons we recommend this:
The result is a better overall package for employees who can pay less when exercising their options, and for the company.
We typically call these shares B Ordinary (non-voting) shares, though it’s worth noting that the name is unimportant (they could equally have been called Ordinary (non-voting), or ESOP Shares, or anything else), this is just our convention.
With the increasing number of EMI schemes being done on SeedLegals (the data suggests around one in six of all EMI schemes is now on SeedLegals) we’re seeing increasing interest in our approach to the creation of dedicated share classes for EMI Option Schemes, and so we put together this post to answer the most common questions.
It’s a requirement of the EMI Code that the option entitles the employee to acquire a share that forms part of the company’s share capital. This makes sense, it would not be possible to allot a share of a class that has not been created.
We encourage our users to create the new share class as early as possible.
If you have an Option Scheme that mentions a share class you have not yet created, go ahead and create it now. Here’s how to do that on SeedLegals:
It’s important to know that there is no statutory provision that governs the creation of a new share class – in other words nowhere does it say that the Articles need to be modified and in fact a much simpler method is available:
There is no need to update your company’s Articles to create a new share class, unless it is required by your company’s Articles.
Normally, the Articles do describe the company’s share classes. But, updating the Articles is a major admin exercise:
The simpler approach is to use a Shareholders Resolution to create the new share class now, and then when there’s some other reason to update your Articles (e.g. as part of your next funding round), you’ll supplement them with the share class description then.
If you need more information on this, feel free to contact us directly.
This is not intended as legal or tax advice on which you can rely. If you are still uncertain, you should obtain professional advice.