So you've set up either an EMI or an unapproved scheme and now you're ready to get that grant paperwork out of the door - nice!
You'll now need to create the grants for each individual. An Option Grant is the actual paperwork that the employee signs to finalise the granting of a share option (i.e. it is a different document from the Option Scheme). Normally this would be a whole lot of copying and pasting - but now it's super easy on SeedLegals!
Here are the steps:
Work out exactly how many share options you're going to give to each team member. It's likely in an employment or advisor contract you've promised a %, but now you'll need to work out a fixed number of shares for the grant.
Because the grant size is diluted by a funding round, if you've accepted investment since the promise, you'll need to work out how many shares would have been granted before you accept new investment. And remember to always use the fully diluted (aka including the options pool) total when working out grant percentages on your cap table - otherwise your maths will be off!
If any of that doesn't make sense - hit the chat button and we can advise.
Once that's done, you can input the details into the options grant:
Select Share Options on the left menu and select Grant Options.
Enter the details of the Option Holder (including their address) and you'll get through to this page:
Here you can fill in:
1) the number of options to give the individual,
2) the exercise price (the amount that the holder will pay for their options) and,
3) the date of the grant (This should always be the date the Option Agreement is signed. Note - this is not the same as the vesting start date - that'll come later!)
For EMI schemes - the exercise price will normally be the same as the Actual Market Value (AMV) agreed with HMRC which will mean that employees won't need to pay income or national insurance tax upon exercise. If the exercise price is below the agreed AMV, then they would be taxed on the difference between that price and the AMV. For unapproved schemes - it's up to you to decide what they'll pay for their shares on exercise; the most common is setting them to nominal value.
If you have multiple schemes on the platform, be sure to pick the right one you want your option holder to participate in.
Remember, for EMI schemes, to input the holders National Insurance number; this is important for notifying HMRC about the scheme.
3. Scroll down and then you'll see the second part of the option grant - the conditions:
Here you'll fill in the vesting start date (which is normally set to the employment start date).
The vesting frequency covers how often share options will vest e.g. every quarter.
The vesting cliff is a certain period which must pass, before the options begin to vest. This is a great way to incentivise individuals to stay with the company because if they were to leave during the cliff period, they would receive zero options.
Vesting acceleration deals with whether options will all vest at once at the point of a sale. For example, if you initially had a vesting period of 5 years, but your company was acquired in year 3, with accelerated vesting all of the persons options would vest immediately at the point of that sale instead of 2 years later. Acceleration portion then covers the % of the unvested shares which will vest immediately on the sale of the company.
4. The platform will then generate the option grant.
Hit Create on the Option Agreement, and you'll go through to the document:
And then click on the blue sign button to complete the agreement and send it out to your Option Holder's email.
As this document is a Deed - it'll need to also be witnessed. The platform will generate you a link to send out to to your witness.
5. Repeat this process for all of your option holders, and wait for them to all be signed and witnessed.
6. When they are all signed and witnessed, and you've clicked the 'approve option grant' button, go back to the 'Share Options' section and click on 'Option Certificates'
You'll then get through to your Option Table. Hit Sign All for all of your Option Certificates, and Actions: Email Certificates to send them out to your options holders.
Once these Option Agreements are completed - don't forget about letting HMRC know about the EMI grants. You have 92 days from the date of the grant - and there can be big problems if that's not done.
If you have granted options under the Unapproved Option Scheme to UK employees or directors, you do not need to notify HMRC like you do with EMI options (within 92 days), but you do need to do an annual notification by July 6th each year for the previous financial year's activity.
As always with SeedLegals, we're here to support you every step of the way. So, if you get stuck or need a bit of help, hit the chat on the bottom right.