How your SME can create a qualifying EMI options scheme

These are the criteria your scheme must meet when it is created in order to qualify as EMI.

Types of shares

Issued options need to be for fully paid shares. They must not be for redeemable shares, which have a fixed buy-back agreement from the company.

Exercise period

Options need to be realistically capable of being exercised within ten years of their grant.

Terms written down

The terms of the EMI agreement between your company and each of its employees need to be written down and kept on file in case HMRC wishes to inspect them.

The written terms must cover:

• The date of option grant.
• The number of shares granted.
• The exercise price.
• When and how the options can be exercised.
• Any restrictions on the shares, such as shares being subject to a drag-along clause.
• Any performance conditions, such as the employee meeting specific sales goals.
• Any forfeiture risk, such as the employee leaving the company.

Vestd automatically keeps a digital record of these terms that you can access at any time.

Options not transferable

The options must not be transferable, except in the case of the employee's death.

Amendments

Amendments cannot be made to improve the rights of the options holder in terms of number of shares, price, or when they can be acquired, unless the impact is minimal, or was envisaged in the original agreement.

Performance conditions can only be changed if the conditions are fairer for the employee and not more difficult to achieve.

Company re-organisation

If your company is acquired post-scheme setup, there are a detailed set of conditions if you wish the scheme to be replaced within the new entity. 

If you are confident that your business meets these qualifications, you will be able to create an EMI scheme. Your next step will be to obtain a valuation from HMRC so that your scheme and its recipients have certainty on the value of their shares and know what tax will be due on exercise or exit, as the actual value will change as your business grows.

Why not book a free call with one of our equity consultants to discuss EMI schemes in more detail?