{"id":8199,"date":"2020-11-01T00:12:28","date_gmt":"2020-11-01T00:12:28","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=8199"},"modified":"2024-11-08T11:15:39","modified_gmt":"2024-11-08T11:15:39","slug":"share-options-and-share-option-schemes","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/share-options-and-share-option-schemes\/","title":{"rendered":"Share options and share option schemes explained"},"content":{"rendered":"

Companies sometimes grant share options to their employees as part of their overall remuneration package. As well as incentivising staff, they can provide tax benefits to employees and the business. We will consider the ins and outs of share options in this blog post.<\/p>\n

What are share options?<\/h3>\n

Share options are essentially an agreement under which a company grants a third party (usually an employee) the option to purchase a certain number of company shares at a specified date in the future.<\/p>\n

The options are normally for a fixed price, known as the ‘exercise price’, and often under specific conditions, e.g., that the company has achieved a certain level of profitability over a set timescale.<\/p>\n Issue shares in your company today - for only \u00a379.99<\/span><\/a>\n \n

Because the exercise price is often fixed at the time the share options are granted, the theory is that employees will be incentivised to work harder to improve company profitability. Therefore, increasing the share price, whilst allowing them to purchase the shares for a lower cost than their new value, will lead to them making a profit.<\/p>\n

Although share options are often used as part of a benefits package for employees, e.g., as an alternative to a bonus scheme or a higher basic salary, they are sometimes also granted to company directors or third-party investors. But it\u2019s the schemes for employees that are most often discussed in relation to share options, as these can also provide tax benefits.<\/p>\n

What are the main share option schemes available?<\/h3>\n

There are three main types of share option schemes for employees:<\/p>\n

Enterprise Management Incentives (EMIs)<\/h4>\n

Enterprise Management Incentive<\/a> schemes (EMIs) allow a company to grant options up to the value of \u00a3250,000 for each individual employee, calculated over a three-year period.<\/p>\n

Employees granted the options will be entitled to exercise their options, i.e. purchase a specified number of shares at a fixed price, upon a \u2018trigger\u2019 event. Examples of trigger events are:<\/p>\n