Class Restrictions and EMI

This article explains what Class Restrictions are in relation to EMI, why it matters and what you need to do

One of the requirements of EMI is that recipients are informed of any restrictions that relate to the shares that they are to receive.  This is to protect the recipient so that they are fully aware of these on receipt of the option.

The standard Vestd EMI agreements outline these in general terms, but it is also important to more specifically lay them out and where they can be found if there are any.  On the platform, this is done at the point of authorising the option pool over the specific class of share.

These restrictions are NOT the commercial vesting terms that you give to the options (eg time based or performance related), but are rather the restrictions on the shares themselves once exercised.

These can typically be found in the Articles of Association (AoA) of the company or maybe a Shareholder agreement if that would also be relevant.

The nature of these restrictions are things that restrict the ability of the shareholder in any way.  Examples of this are as follows:
  • Drag and Tag clauses which force the shareholder to sell if the majority wish to sell
  • Pre-emption rights that restrict the ability of the shareholder to sell to whomsoever they like
  • Employee shareholder buy-back rights that mean if an employee leaves they may have to sell their shares back to the company
  • Restricted rights to dividends or voting

Best practice is to reference a summary of the restriction and the clause in which they can be found in the Articles or the Shareholder agreement.  For example: "Drag along rights as outlined in Article 5.3 of the Company Articles."

If a company is on Model Articles, and does not have a Shareholder Agreement, then there will be no relevant restrictions to add.  

If you have adopted Vestd Articles (AoA) then these are the relevant restrictions that should be added to your EMI option pool:

The class restrictions laid out in the Articles of Association (available at any time on the Vestd platform including acceptance of the option) with these shares are as follows:
Transfers of Shares (Articles 13, 16)
Leaver Transfers (Article 14)
Permitted Transfers (Article 15)
Compulsory Transfers (Article 18)
Drag along (Article 20)


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