Share Option Agreement – Emi Scheme

Pearl Documents: Once you have an approved HMRC evaluation, you can send option agreements to your employees. Our platform makes it a breeze. With just a few clicks, you can specify who you`re giving options to, how many options you`re granting, and what the conditions are. We create the grant documents for the company and the employee, and you can even sign it with an electronic signature. Note: You can obtain prior authorization from HMRC by providing supporting documentation to confirm that you are actually qualified for the EMI system before committing to pay for the evaluation process. SeedLegals can submit this Advance Insurance for you, but for most companies, it`s not necessary. The main tax advantage of an ME system is that workers are not required to pay income tax, which would normally be levied on the market value of the shares or options assigned to them. When workers are granted options under an approved ME, they are only subject to a capital gains tax of 10% on value added compared to what they pay for the shares (the “exercise price” of the option) as long as that price is equal to or greater than the valuation of the stock market at the time of the granting of the options. Shares can be cashed if they can be exchanged for cash on predetermined dates or events. There may also be conditions for the exchange of shares at the request of the company or the shareholder. All conditions of your option scheme must be recorded in writing.

Apart from HMRC rules, all other terms are flexible and can be designed by your company. These include blocking periods – that is, when options can be exercised (events, successes or schedules within 10 years). Enterprise Management Incentives (EMI) is one of four employee engagement systems approved by HM Revenue – Customs. The other systems are: The EMI assessment is something you offer to HMRC via the VAL231 form. You have to calculate two key figures for this proposal: unlimited market value (what the shares are actually worth) and actual market value (what stocks are worth, which is discounted for restrictions, for example. B the fact that the shares are depreciated over time). Remember, you want a low valuation, because then the profit will be greater for your employees if the value of the shares increases over time. Optional phrases/clauses are included in the brackets. These must be carefully read and selected to be compatible.

Unused options should be removed from the document. If the event occurs within 12 months of the options being granted, the employee loses the benefit of relief of a reduced rate of 10% capital gains tax in the event of a sale of the stock. Of course, this relief is also lost if the options are not exercised within 90 days of a prohibitive event. Remember: as part of this guide to EMI stock options, we study how a company`s shares can be held by its employees, not on the broader public market. In fact, the world of stocks and actions goes much lower than the brief explanation above, but this should provide a useful basic understanding. Once these issues are resolved, formal ME option agreements should be prepared under all relevant conditions. After the signing by the company and the staff, the options are formally granted. Companies can structure the exercise date of an option based on the preferred approach. Often, this only allows the exercise of an option in case of exit (i.e. when the transaction is sold). The advantage is that there are not many minority shareholders. It also avoids employee share repurchase problems, if and so, they go away, as options can be structured so that they expire when an option holder leaves the business.

The EMI Comprehensive Solutions Package – everything you need to implement your EMI program – attracts talent: offering a rewarding options program will attract the best talent to the job market, which is especially important

© 2021 Mahrs Schoppman, M.A., LMFT