Employee Share Schemes for Startups

There is a typical “lawyer’s answer” to this question, which is – it depends! The scheme that is best suited to a company depends on the founders’ motivations, which could range from tax effectiveness, affordability or security for their own interests. Some of the HMRC approved schemes also have limitations, such as certain trades not being eligible and limitations on the number of employees the company can have.

We would recommend that you seek professional advice to explore the various schemes and work out which is best for your business.

A common misconception with share schemes is that they have to be offered to all employees. However, the majority of share schemes do not need to be for the whole company – instead they are very flexible and allow founders to pick and choose the employees they want to reward and / or retain, which means you can have a scheme for all employees or you could set up to apply to just the senior management team.

This is a decision for the founders of the business to make and will depend on how much equity they want to retain for the future. Founders will also need to consider the requirements of any current or potential external investors such as VCs. Typically, we see smaller businesses set an option pool of between 10-20%.

If you are a founder of a startup or an early-stage business and are thinking about sharing equity with your team, we can help you explore the different options available and implement your chosen scheme. If you would to discuss further, please contact Yavan Brar and Emma Roper in our Corporate team.