1. EMI options expire 90 days after the employee leaves the company...
For EMI options, if your employee is leaving (or if a director is resigning their post) this is a disqualifying event for the purposes of EMI.
As per EMI legislation, they have 90 days to exercise their options before they will lose all their EMI benefits. The reason for this is that EMI exists to help start-ups hire and retain talent and so, if an employee (or director) is leaving the company, it’s no longer serving that purpose.
So does this mean that my option grants expire after 90 days of leaving?
Thankfully, no. Within our EMI scheme you had the opportunity to choose how soon the options lapse after the employee leaves and this will still apply. However, this is different from the HMRC expiry above. If your lapsing period is longer than the 90 day EMI period, this means that the EMI benefits disappear, but the employee may still exercise their now Unapproved options up until they lapse.
What do I do if the option has lapsed and I want it to be exercised?
Not to worry, the Board retains the discretion to allow exercise where it would otherwise not be permitted. So, if you want to allow exercise of lapsed options please contact us for more information.
2. Time Restrictions
In your options agreement, under clause 8.3(d), you will find that the option holder's exercise is subject to a time restriction.
If the option holder has 45 days to exercise their options after leaving the Company, this restriction is 30 days. This means that the option holder should wait 30 days after leaving before they can exercise their options.
If you choose that the option holder can exercise 90 days, 6 months, 1 year or 5 years after leaving, in your options scheme rules, then the option holder should not exercise until 75 days after they leave the company.
The reason for these restrictions are so that the Company can ensure that the leaver is not a bad leaver and that they comply with any restrictive covenants that they are subject to. For example, not joining a competitor within a certain time frame.
Therefore, option holders should wait at least 30 or 75 days (depending on your scheme rules) to exercise after leaving the company.
What if the option holder wants to exercise before the restriction?
If they want to exercise earlier, that's fine! However, the company would need to sign a board resolution allowing them to do so.
Having considered the above, follow these steps to manage your employee's options when they leave:
Step 1: Marking them as a leaver on platform
So now that your employee is no longer at the company, you need to mark them as a leaver on the platform.
You can do this by heading to the Option Holders view in Share Options and clicking on their grant:
This brings out a bar from the right, on which you you will click ‘Stop vesting’:
You should mark them as a Good leaver if they are any type of leaver except a Bad leaver and add the date they left the company as the ‘Stop vesting date’. This freezes their vesting to the date they left the company, and they will only be able to exercise the options which vested up to this date.
If you can’t mark them as a leaver and their option grant also appeared under Actions required, it is because you didn’t close their grant:
If the Option Agreement is signed, you can go ahead and click ‘Get option certificate’ at the bottom of their grant to close it off and you will now be able to do the vesting.
Step 2: Exercise
When your employee leaves the company, they can exercise their options, so long as they haven’t yet lapsed, and it is permitted by the exercise rules of the scheme. If your employee wishes to exercise here’s our step-by-step guide to exercising options for your reference.
Lapsed grants will appear on the platform at the bottom of the 'Option holders' workflow.
Step 3: Updating HMRC of exercised or lapsed options (EMI only)
Now that the EMI options have been converted to EMI options, you need to let HMRC know. Fortunately, you don’t need to let HMRC know each and every time, you just need to let them know by the 6th July in the Annual Return.
You’ll get an email nearer the time to do the Annual Return and here’s our step-by-step guide if you’re curious.