Shareholders agreement for a company issuing EMI options

Enterprise Management Incentive options are how small companies give employees a stake without a tax charge on grant, and a company that grants them has decided to have employee shareholders one day. The shareholders' agreement has to make room for them: a pool the existing shareholders have agreed to be diluted by, an approval process for grants, leaver terms that match the scheme rules, a position for option holders and for the shareholders they become, and a sale mechanism that deals with options as well as shares. I draft that agreement for the shareholders together, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days; the scheme itself is set up by the company's accountants.

Who this is for

Founders and shareholders in England and Wales of companies setting up or operating an EMI scheme, and companies whose investors or advisers have asked for the shareholders' agreement to be aligned with it.

What matters in a shareholders' agreement with EMI options

What EMI options are and what the company must be

EMI options are share options granted under Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 to employees of a qualifying company, with no income tax or national insurance on grant and, where the exercise price is at least the market value agreed with HMRC at grant, none on exercise, so that the employee's gain is taxed as capital on a sale; the company must be independent, carry on a qualifying trade and be within the size limits, the employee must meet the working time requirement, and the options must be notified to HMRC within the time limit. The accountants design the scheme and obtain the valuation; the shareholders' agreement is drafted to fit it.

The option pool and who approves grants

The shareholders should agree the size of the pool (a percentage of the fully diluted capital), from which shares it is satisfied (new shares, diluting everyone, or shares held by a founder or an employee benefit trust), who approves grants (the board, with the shareholders' consent above a stated size or for named individuals), and the standard terms (exercise price, vesting, performance conditions); the agreement should record the pool as an exception to the reserved matter on issuing shares and to pre-emption under section 561 of the Companies Act 2006, so that grants within it do not need fresh consent, and should say that the pool can be enlarged only as a reserved matter.

Exercise, the shares that result and the leaver terms

Options are exercised on a sale, on a stated date or in tranches as they vest, and the shares that result are ordinary shares (or a class created for employees, with limited votes) subject to the articles and the shareholders' agreement; the option agreement's leaver provisions (lapse of unvested options, a window to exercise vested options for good leavers, lapse for bad leavers) should match the leaver provisions in the shareholders' agreement for the shares acquired, and both should match the scheme rules, with the restricted securities election under section 431 of the Income Tax (Earnings and Pensions) Act 2003 made on exercise where the accountants advise it.

Option holders and the shareholders' agreement

An option holder is not a shareholder and has no rights under the shareholders' agreement until exercise, and the agreement should say so, should require every option holder to sign a deed of adherence on exercise, and should provide for the shares they acquire to carry the rights of the employee class (information on a sale, tag-along, drag-along, leaver provisions) and not the founders' or investors' consent rights; the agreement should also say that the company's obligations to option holders under the option agreements (not to do things that would prejudice the options without adjustment) are respected by the shareholders in exercising their own rights.

The sale that triggers exercise

Most EMI options are exercised immediately before a sale, and the agreement's drag-along, tag-along and sale process should treat option holders as parties to the sale: notice of the offer to option holders, a window to exercise conditional on completion, the shares acquired dragged on the same terms, the exercise price netted against the proceeds where the scheme allows, and the proceeds allocated between classes as the articles provide; a sale process that forgets the option holders discovers them on completion day, and the agreement should name them in the mechanics.

The scheme rules, the valuation and the accountants' role

The option agreements, the scheme rules, the HMRC valuation and notification, the annual return and the tax treatment are the accountants' work, and the shareholders' agreement should cross-refer to them, record that the scheme is EMI and the pool it operates within, and be drafted so that nothing in it (a preferential right, a restriction on the shares) disqualifies the options; the note on the articles addresses the employee share class and the transfer provisions under section 33 of the Companies Act 2006, and amended articles are quoted separately where the scheme needs them.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

Can the shareholders' agreement set up the EMI scheme?

It cannot. The scheme is set up by the company's accountants with the option agreements, the HMRC valuation and the notifications. The shareholders' agreement makes room for it: the pool, the approvals, the leaver terms and the sale mechanics.

Do option holders get a say in the company?

Not until they exercise, and then usually through an employee class with limited votes, information on a sale, and tag and drag rights. The agreement keeps the founders' and investors' consent rights with them.

What happens to options when we sell the company?

They are exercised conditionally on completion and the shares are dragged on the same terms as everyone else's, with the exercise price netted where the scheme allows. The agreement names the option holders in the sale process so that nobody forgets them.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement with employee shareholders
• Shareholders agreement for a software company

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.