As part of our EMI Share Plan offering, we deliver market-standard best practice Share Plan documents helping customers to legally adopt an EMI scheme and start issuing equity for their qualified employees.
Apart from setting up your EMI scheme, we also offer the ability for you to issue Unapproved options, allowing you to reward and incentivize employees or non-employees who do not qualify for EMI options.
Based on the configuration you opt for, document sets to issue options to employees outside the UK or non-qualifying employees or non-employees will be created and available for you to grant through Carta.
If relevant in your case, reflect a share subdivision on Carta before setting up an EMI plan.
1. Go to Equity Awards > EMI option plans.
Click Request if your company does not have EMI Share plans available. A member of our team will contact you if you are interested.
If you have EMI Share plans available, click Get an EMI option plan.
2. Check if your company meets the criteria for an EMI Share Plan. Click Yes, in case your company does. Bear in mind that we do not check if your company meets the criteria for an EMI share plan on your behalf.
3. From this moment on you will be customizing the provisions of your plan.
- Share class / Unapproved Plan
- Establishing an Incentive pool
- Your grants' vesting schedule
- Leaver treatment
Share class / Unapproved Plan
You will be inputting the following information:
- Name of the option plan: That is what your plan is going to be called. It is at the company's discretion to create a name for their EMI share plan.
- Share class: Select a share class to be associated with your plan. That means that when options are exercised, they will be converted into shares pertaining to that share class.
- Unapproved options: Tick the box "I plan to issue unapproved options" if you are granting non-tax advantageous options. Unapproved options can be given to employees outside the UK/Non-qualifying employees and also Non-employees (e.g advisors, contractors).
Establishing an Incentive pool
Select Use the current incentive pool if you would like to use the current number of authorized shares you have set up in Carta.
On the other hand, you will be shown the Incentive pool calculator if you opt for Extend the current Incentive pool.
These are the items displayed on this page:
- Fully diluted shares: It shows the company's issued shares/equity awards added up to the current shares in the incentive pool.
- Incentive pool size: It shows the current size of your incentive pool.
- Incentive pool %: It shows the current size of your incentive pool represented in percentage. That calculation is based on the number of fully diluted shares.
- Target size of incentive pool: Use the dropdown to choose from % (percentage) or # (number). That is the new number you would like the incentive pool to have.
- Final incentive pool size: It shows the new number of authorized shares after you completed the Target size of the incentive pool.
- Final incentive pool %: It shows the new percentage of authorized shares after you completed the Target size of the incentive pool. That percentage is based on the fully diluted.
- New fully diluted shares: It will show the new number of fully diluted shares after you extended your incentive pool.
- Shares to authorize: It will show the number of shares being added to the current incentive pool.
Your grants' vesting schedule
Carta allows for the ability for you to select Time-based, linear vesting schedule for your grants that will be automatically populated when you are sending out grants through the platform. This is the default and most commonly used vesting schedule. It consists of 4 years, with a 1 year cliff (where 25% vests at the first year anniversary), then a monthly vesting schedule where the tranches vests on the first of the month.
Alternatively, you can configure vesting on a Grant by grant basis, selecting this option would allow you to configure vesting schedules ranging from immediate vesting, performance-based, alternative time based schedules or even bespoke custom vesting schedules based on your preferences.
Leaver treatment
As part of our standard drafting, Carta offers different two provisions for your leavers - Good leaver, bad leaver and You leave, you lose.
These provisions impact what happens to an employee’s options once they leave the company.
Good leaver, bad leaver is a more employment friendly approach that maximizes recruitment appeal and is the Carta recommendation for the Leavers’ clause.
Under this provision a Bad leaver is defined as an ex-employee who was terminated without notice (or payment in lieu of notice) or for disciplinary reasons. When they leave, all options are lost (even vested ones).
Whereas a Good leaver is an ex-employee who is not a bad leaver (even if they were terminated involuntarily for underperforming, for example). When they leave, they get to keep vested options.
You leave, you lose stipulates that instead of a bad leaver/ good leaver, we include a clause that determines all employees lose their options when they leave. This would mean regardless of the circumstances surrounding an employees’ departure, they would forfeit all options including the vested ones once they leave the company.
4. Review the provisions of your plan. Tick I confirm that the above information is correct and Continue.
5. Click Download all to have access to all the documents of your EMI plan.
You will have access to the following documents:
- Option Plan: This document sets out the rules for granting options that qualify as EMI share options under Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003. The rules also provide for the grant of non-tax-advantaged options.
- Notice of grant: This document includes a customizable cover letter congratulating the option holder on their grant and placeholders for personal details like name, address, and number of shares. It also outlines vesting provisions. You will have three separate documents if you opt in for Unapproved options when creating your plan.
- Notice of exercise: This is the document that will be tailored to each grantholder. The Notice of Exercise should be completed by each grantholder as/when they come to exercise their options.
- Section 431 election: The Section 431 election is a standard document that allows employees who acquire EMI shares, to have their shares treated as unrestricted from the time of acquisition. This helps avoid a potentially higher tax charge in the future when the restrictions are lifted.
6. Upload the adoption documents of your plan.
For your plan to be formally adopted by the company you would need both Shareholder's and Board's approval.
You will also need to set a date in which the extension of your incentive pool will be valid from if you opted for extending it. Once you have done this, click Continue.
7. Review the information and Activate your plan.
8. Once your plan is activated, it is highly recommended you proceed with the final steps.
You can request an EMI valuation with Carta and one of our specialists will be in touch. Apart from that, you will also need to register your plan with the HMRC.
The plan documents were designed in partnership with lawyers. The Carta team is not qualified to provide legal advice or customize our standard templates. Please refer to your legal counsel if you would like to do so. |