Granting EMI options over Growth Shares

Your step-by-step guide to an easy setup

Thinking of granting EMI options over a Growth Share class? 🎉 Great choice!

Granting EMI options over a Growth Share class is a savvy move, minimising the impact on your EMI awards limit while protecting the value founders have built. With features like hurdles that ensure employees only profit beyond a set threshold, EMI options over Growth Shares are a smart way to reward your team without compromising your business's equity.💡

This guide breaks down the steps, from setting up the legal framework and getting valuations approved to designing your EMI scheme and adding recipients. Follow along, and you’ll have a streamlined process for rewarding your team and securing peace of mind.

Contents📋

• Minimal impact on the EMI awards limit
• Growth Shares come with a hurdle
• Step 1: Getting the right legal setup
• Step 2: Getting Your Valuation Report
• Step 3: Adjust Your Growth Share Class
• Step 4: Create Your Option Pool
• Step 5: Reapply Conditionality to Your Growth Share Class
• Step 6: Design Your EMI Scheme
• Step 7: Add People to Your Scheme

 

Minimal impact on the EMI awards limit. 📉

The limit allows a company to grant up to £250K worth of options (based on UMV) to an individual employee over three years. Since Growth Shares are usually issued at nominal value, they’ll barely make a dent in that £250K cap.

Another major perk? Growth Shares come with a hurdle. 🚀

The hurdle requires recipients to meet a certain value target before they can start earning profits on their shares, effectively protecting the value founders have already built into the business. 

For example, if your hard work has brought the business value to £1 per share, you could set a 20% hurdle. That means employees would only profit from anything above £1.20 per share, safeguarding the value founders have contributed.

Sounds pretty great. So, how do you go about implementing an EMI over Growth Share structure? 

Don’t worry - we’re here to guide you every step of the way.

Step 1: Getting the right legal setup ⚖️

To make Growth Shares work, you’ll need the correct legal mechanics in place. There are two ways to do this:

1. Adopt the Vestd articles of association. These are based on best practices for British venture capital-backed businesses and already include the necessary Growth Share clauses.
2. Incorporate Growth Share clauses into your own bespoke articles. We’ll provide our standard articles with the Growth Share clauses clearly highlighted for your reference.

If you opt for option 2, please note we will require a complete copy of your articles in PDF format. Once we have this, we can prepare the required resolutions/board minutes to circulate for signing to your directors and shareholders. Once the resolutions pass, we will file the articles and the special resolution with Companies House.

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Step 2: Getting Your Valuation Report📈

Since you’re granting EMI options, you’ll need a valuation report and a VAL231 form to submit to HMRC for that all-important approval letter. Don’t worry - it’s easy to get started! 📝

On the Vestd platform, simply complete our valuation information request workflow. You can find this on your Valuations page by clicking:

1. Share schemes > Valuations > 

2. New valuation >

3. Start a new valuation

This will guide you through providing the necessary details about your company, accounts, performance, and share capital. Once you’ve submitted everything, our amazing valuation team will get to work on your report.

When it’s ready, we’ll send it over for your review. If you have any questions during this stage, our friendly valuations team will be happy to help. Once you confirm you’re happy with the report, we’ll send you clear instructions for submitting your valuation report and VAL231 to HMRC.

What’s Next? 🕒

HMRC typically takes 6-8 weeks to reply with your approval letter. But don’t let the wait slow you down - you can move on to Step 3 while you wait!

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Step 3: Adjust Your Growth Share Class ⚙️

Before setting up your option pool, you’ll need to remove the conditionality from your Growth Share class. Just drop us a line at support@vestd.com, and one of our friendly Customer Success Team members will handle it for you in no time!
 

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Step 4: Create Your Option Pool 🛠️

Now it’s time to create your option pool! Head to your Share Pools page:

1. In the left-hand navigation panel, go to Share schemes > Share Pools




2. Click the green ‘Create a New Option Pool’ button.

📽️ Need help? Click here for our step-by-step tutorial video to walk you through the process of creating an option pool.

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Step 5: Reapply Conditionality to Your Growth Share Class 🔄

Now that your option pool is set up, it’s time to switch the conditionality back on for your Growth Share class. Simply reach out to us at support@vestd.com, and one of our dedicated Customer Success Team members will re-enable the conditionality for you. We’re here to help make it seamless!

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Step 6: Design Your EMI Scheme ✨

With your option pool set up, you’re ready to design your EMI scheme:

1. On the left-hand navigation panel, click Share Schemes > EMI

2. Under the ‘Scheme templates’ section, click ‘Create new templates.’

3. Our guided workflow will take you through every step, from setting vesting periods and exercise prices to defining vesting criteria and more.

It’s all about creating a scheme that works for you!

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Step 7: Add People to Your Scheme 🙌

Your scheme is ready to roll - now it’s time to add your recipients.

📽️Check out this video tutorial for everything you need to know about adding recipients to your EMI scheme.