Cathy Wears from the CMS Employee Share Incentives team has helped numerous start-ups with their employee share schemes. She gives her tips on how start-ups should organise their share option plans.

DO consider the size of your share options pool – this should be large enough to incentivise current staff and leave sufficient outstanding to attract strategic new hires in the future.

DON’T overcomplicate the design – staff are more likely to be motivated if they understand the plan. 

DO think about having an exit based plan – this keeps your cap table uncomplicated and is favoured by investors.

DON’T forget about leavers – do you want your staff to stay with you for the full journey until exit? If so, make sure leaver terms reflect this.

DO make sure everything is documented clearly to avoid any confusion – let your staff know the number of shares they will receive under their options rather than a percentage as your share capital (and therefore their option percentage) will change over time.

DON’T forget to keep good records – this will help in any future due diligence process and you will also have annual reporting obligations in the UK and potentially overseas.

DO think about tax (sorry!) – in the UK share options are usually taxed as income at exercise but there are recognised tax efficient structures available in the UK (for example, EMI) and in some overseas countries which may mitigate the tax consequences.

DON’T forget that if you give options, awards or shares to staff overseas there will be different tax rules and – you may be required to withhold taxes and pay employer social security contributions.

DO think about using the Share | Start Ups service from ShareReporter to let you know about tax and legal obligations when offering options in the UK and in over 80 global jurisdictions!