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How to add details of restrictions on shares to your EMI scheme

What are restrictions on shares and why do they need to be added?

Restrictions on shares are any bars to the shareholder enjoying the rights of the shares. They differ from share class characteristics which describe the rights attached to the shares. An example of a restriction is ‘Drag along’, which means that minority shareholders can be forced to sell their shares along with the majority, thus curtailing enjoyment of the shares. By contrast, an example of a share class characteristic, is that the shares have no voting rights. Here there is no impediment to enjoying a right, there just is no right. Another example of something that isn’t a restriction is a precondition to getting options for example, requiring potential option-holders to sign a s431 Joint Election.

It is a requirement of EMI that you include details of any relevant restrictions on the shares for the option-holder’s notice, and so we ask you to describe them in the scheme, and they will appear at Schedule 4 of your employee’s option agreement.

Where do you find them?

Details of relevant restrictions can usually be found in the Shareholder’s Agreement and Articles of Association, but they are any restrictions that have been agreed on the shares between the shareholders. This means if you’ve agreed any restriction over email, they should be added too.

If you have done a SeedLegals round, the restrictions will pull through from the Shareholder’s Agreement of your last round, but if your last round was off-platform, you’ll need to add them manually to the scheme.

Is there an exhaustive list of restrictions I can check?

Unfortunately not! Restrictions can take many different forms. We’ve added the most common restrictions as tick-able choices in the EMI scheme, under the Restrictions section:

Nevertheless, if you have a restriction that isn’t covered by any of these, you can add it to the freeform text box below.

If you’re at all unsure you should fire over a quick email to the lawyers who drafted your Shareholder’s Agreement and Articles of Association. They will be able to tell you immediately exactly which restrictions you have agreed to in these documents.