Step 1: Your employee notifies the CEO that they wish to exercise their options
The first step is for your employee to trigger the start of this process by notifying the CEO that they wish to exercise. You must then check whether they can exercise:
If they are currently employed, please check clause 8.1 of their Option Agreement to see if they are eligible to exercise. The employee must have vested options at this point.
If the employee is leaving the company, please check clause 8.3 of their Option Agreement to see if they are able to exercise. The deadline after their last working day for the employee to notify the CEO that they wish to exercise can be found at 8.3(c).
Step 2: The company exercises the options on SeedLegals
Now, the company begins the process of exercising options on SeedLegals. Start by clicking ‘Share Options’ within the menu on the left side of the SeedLegals platform, and then click the ‘Option Holders’ view.
Then find the relevant option holder who is exercising their options, under the ‘Option Holders’ view and click on their bar.
There will be a pop-out screen from the right and there you’ll go ahead and click ‘Stop vesting’ if the employee is leaving, then ‘Exercise Options’ at the bottom. If the employee isn’t leaving just go ahead and click ‘Exercise Options’ straight away.
This will bring you through to the exercise workflow, which you can now access by clicking on the active exercise under ‘Actions required’.
Step 3: Creating your Notice of Exercise
The Notice of Exercise is required for the options to be exercised and the employee to be granted their shares. Simply click on the ‘Create’ button to go ahead and generate the document and then share it with them to sign.
When you share this document with your employee, it's a good time to tell them that they need to transfer money to the company's bank account in exchange for the shares. The amount to transfer is the exercise price * number of options being exercised.
Step 4: Sign the Joint Election and the Deed of Adherence
Through the Joint Election, the employee is agreeing to take on the liability for any income tax that is charged on the acquisition of the shares. They are liable for this anyway, but this formalises that understanding to protect the company.
You are about to have a new shareholder in your company, which means they should agree and sign onto any existing shareholder agreements you have in place. Provide your employee with a copy of the shareholder's agreement, and then they can sign the Deed of Adherence, through which they are bound by the same terms as all other shareholders.
Step 5: Convert your employee's share options into shares
Once you have received the payment for the shares, you will officially create the new shares in the company. This is done via the SH01.
Click the create button, then sign the SH01 form by clicking the purple ‘Sign’ icon at the top of the page. You should then file it on Companies House.
We have a guide to filing an SH01 on Companies House using their online webfiling here.
Or if you prefer to post the SH01 to Companies House, you can to the appropriate address:
Step 6: Click the 'Exercise the option' button under the SH01
This finalises the options exercise and your employee will now be a shareholder on your cap table. You can generate their share certificate by clicking on Shares on the left hand side > Share Certificates at the top of the page.
Have the director and a witness sign the certificate, then you can select the certificate and send it to your shareholder's email.