Share Option Scheme
/ʃeə ˈɒpʃən skiːm/
A share option scheme is an arrangement that gives employees or other stakeholders the right (but not the obligation) to buy shares in your company at a predetermined price at some point in the future.
A share option scheme is an arrangement that gives employees or other stakeholders the right (but not the obligation) to buy shares in your company at a predetermined price at some point in the future.
Your company grants options to individuals, typically with a "strike price" (the price they'll pay) set at the current market value.
After a vesting period - often 3-4 years - the option holder can choose to exercise their options and become a shareholder.
If your company has grown in value, they're buying shares at yesterday's price, which is the incentive.
A share option scheme lets you attract and retain talented people when you can't compete with big company salaries.
You're offering a stake in your company's future success rather than immediate cash, which also helps preserve your runway whilst building a committed team.
With a share option scheme, recipients don't own shares immediately - they have the right to buy them later.
Actual shares transfer ownership straightaway, meaning immediate voting rights, dividends, and potential tax implications, whereas options delay these until exercise.
Most people exercise their share option scheme when there's a liquidity event (like an acquisition or IPO) or when they believe the company's value will continue rising.
Exercising too early can tie up cash and trigger tax charges, so timing matters considerably.
Typically, unvested options in a share option scheme are forfeited when someone leaves.
Vested options might have an exercise window (often 90 days) before they also expire, though your specific scheme rules determine this - it's worth making these terms clear from the start.
Yes, share option schemes trigger tax at different points depending on your jurisdiction and scheme type.
Generally, you may face tax when exercising options (on the difference between strike price and current value) and again when selling shares, so understanding the tax treatment is essential for planning.
