Setting up a share scheme: the six key questions
Here are the questions we answer every day for UK SMEs that are in the process of launching a share scheme.
Follow the links, and book a call to get on the fast track.
How many shares should I give to people?
This is one of the first questions you will face. Three things to figure out:
- How much of my company equity should I set aside for the scheme?
- How many shares should each team member receive?
- How do I manage dilution as new team members join the scheme?
What is a vesting schedule?
When you award options to employees they don’t become available to them immediately. Instead, the options go through a ‘vesting’ period, and become available over time. No prizes for guessing where our brand name comes from!
- What is a vesting schedule?
- Who is subject to vesting?
- When do options normally vest?
- What should my vesting schedule look like?
When can my team access their shares?
Real shares are granted immediately, but options are subject to vesting, and that comes in two distinct forms: exit-only or exercisable. We are huge fans of the latter for all sorts of reasons, but most companies choose the former.
- What are exit-based options?
- What are exercisable options?
- What are the key differences between exercisable vs exit-only options?
- Which type is right for me?
What kind of conditions can I set?
Some schemes can be conditional... and you decide what the conditions are.
Options schemes are usually aligned to time-based vesting over a period of years, but you can also set performance milestones.
EMI option schemes and Agile Partnerships are both perfect vehicles for conditional equity rewards.
How should I price my shares?
This depends on how you want to distribute equity (e.g real shares, growth shares, or options). There are tax implications for each of these methods.
For EMI options schemes you have a choice to make: you can allow employees to exercise the options at the nominal value, or at an agreed actual market value. The former incurs income tax, whereas there is no tax owed on the latter. Or perhaps the exercise price will be somewhere in between these two values?
This can be a lot to get your head around, so if you want to talk it through then just schedule a no-obligation call with one of our equity experts.
What happens if someone leaves?
As a business owner you have plenty of protection in the event that an individual leaves or doesn’t deliver, so long as the right conditions are in place.
However, it’s important for the equity to create the desired impact and incentive. That means the recipient also needs to feel that the criteria is fair.
Schedule a free, no obligation equity consultation
Speak to one of our experts to get on the fast track.
Our equity specialists help UK SMEs every day of the week, and we’re here to help you.
If you want to give people shares (or options) then book a call to get some guidance. You’ll get up to speed in next to no time.