EMI options incentivise employees and aligns their interests with those of management and shareholders. You’ll bear in mind that the principal aim of EMI option schemes is to help you recruit and retain your best staff.
You will therefore need to think carefully about who should get EMI options and for how many shares each EMI option will entitle the holder to. There are also a few rules to comply with for EMI options.
Which employees can get EMI options?
Usually, EMI options are granted to key employees, often at director or senior manager level.
In order to qualify for the tax benefits of EMI options, employees must:
- work for the company for at least 25 hours a week, or for at least 75% of their paid working time (which includes time spent in self-employed work); and
- not own more than 30% of the shares in the company.
How many option shares should be granted?
The board is free to set the number of shares that can be bought by using any EMI option, provided that the overall number of shares is not more than the option pool.
Many employers estimate the expected sale price of the business and base the number of shares an employee would be entitled to on exercise of their EMI option on the multiple of salary that the employee would receive on a sale of the business. Additional EMI options, of course, can be granted later.
For example, if the target multiple of salary for EMI options is set at two, an employee who is on an £80k salary would be expecting to receive an EMI option which would entitle the employee to receive a number of shares worth £160k on exercise of the EMI option.
Maximum for any employee
An employee can hold an EMI option over shares with an unrestricted market value (UMV) of up £250,000 (when the EMI option was granted) in any 3-year period under the EMI option scheme rules.
Maximum for the company
The company can have unexercised EMI options over shares with an unrestricted market value (UMV) of up to £3 million (when the EMI options were granted) under the EMI option scheme rules.
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Please Note: This article contains general information only and Simply Equity is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. This article is not a substitute for professional advice and should not be used as such. Simply Equity does not assume any liability for reliance on the information provided in this article