Why companies do it, how to do it on Vestd, and what happens when the options are exercised.
While the most common way to grant options is by authorising an option pool which creates new shares (upon the exercise of the options), it is possible to create an option pool from existing shares and grant options over those shares.
Companies may decide to grant options over a shareholder’s shares to protect existing shareholders – and potential investors – from dilution.
Rather than authorising and creating an additional 5-10% of shares for your company’s option scheme, you can create an option pool from existing shares to avoid dilution.
Of course, the shareholder whose shares will be used must give the authorisation to do so.
How to grant options over a shareholder’s shares on Vestd
Only Vestd staff can create this type of option pool, so please contact us to start the process for you.
First, we’ll help you authorise the option pool by sending a share supply agreement to the shareholder to sign. A share supply agreement is an agreement between the shareholder supplying the shares and the company granting the options. Please send us the signed agreement, and we’ll use the date on the agreement to create bespoke resolutions to send to the appropriate directors and shareholders.
We’ll send you a link to check the details of the resolution, then you can click Send for signing.
Once the resolutions have passed, the authorisation is complete and we can create the option pool.
We’ll ask you to name the option pool (something like “Shareholder Name’s option pool” will help you differentiate this pool from others) and how many shares are going into the pool.
Once confirmed, we’ll attach the signed share supply agreement and resolutions to the option pool so all the paperwork is together, then send a link for you to review the details of the option pool.
When you’re happy, click Confirm and the shares will be available to distribute.
If you’ve already created an option scheme template, go to All option agreements via your side navigation and select the template you wish to use (if you haven’t created a template yet, select either Create new EMI option scheme or Create new unapproved option scheme).
From there, enter the recipient details as usual, and from the option pool dropdown menu, select the appropriate option pool.
Once you’re happy everything is correct, send the invites to the recipients and you’re done!
What happens when the options are exercised?
When options are granted over a shareholder’s shares, they’re currently held by someone else, so a stock transfer is required to exercise the options.
And rather than the option holder paying the granting company the exercise price, they will pay the shareholder.
The other notable difference when exercising over a shareholder’s shares is that stamp duty is payable when the total exercise price is over £1,000. This must be paid by the option holder to HMRC, and the proof of stamp duty payment PDF must be uploaded to Vestd in order to complete the stock transfer.
Stamp duty is calculated at 0.5% of the total exercise cost and rounded up to the nearest £5.
For the option holder
You will request to exercise your options as usual, via Vestd, and the company will receive the request.
Start an exercise request by going to the Agreement summary from your dashboard. Then select Exercise request to submit how many options you want to exercise.
Once your request is submitted, you must pay the shareholder the total amount required. You will need to contact the shareholder and the company to make payment.
Once paid, the company will then send a stock transfer form to the current shareholder to sign.
If the total exercise price is less than £1,000, the stock transfer will be complete once the stock transfer form is signed.
If the total cost to exercise exceeds £1,000, stamp duty will be due at 0.5% of the total exercise cost and rounded up to the nearest £5. You will need to pay stamp duty to HMRC and provide the proof of payment PDF to the company. We’ll email you instructions on how to do this.
It’s worth adding that you cannot submit multiple exercise requests in quick succession to keep the total exercise price below £1,000 and avoid stamp duty. HMRC will see the linked transactions and may fine you for it.
Once these steps are complete, and the proof of stamp duty payment PDF is uploaded to Vestd, the stock transfer will be complete and you’ll be the owner of the shares in question!
For more information on your other tax liabilities, please read the relevant help guide:
For the company and shareholder
When an exercise request comes in for options over a shareholder’s shares, you will be notified by email and the link will take you to the exercise page. Or you can go to Share schemes > All option agreements > Exercise requests via your side navigation.
First, the option holder must pay the shareholder the total amount required. You must confirm payment has been made before processing the exercise request.
Once payment has been made, click Process exercise request and we’ll send the shareholder a stock transfer form to sign.
If the total exercise price exceeds £1,000, the option holder will need to pay stamp duty.
When stamp duty is payable, the Vestd platform will let the option holder know and explain what you need to do to complete the exercise.
The company must get the proof of stamp duty payment PDF from the option holder and upload it to Vestd to complete the exercise request. The shares won’t be transferred without it.
Once the stock transfer form is signed and the stamp duty receipt has been uploaded to Vestd, the exercise request will be complete and the option holder will now legally own the shares.
If stamp duty isn’t payable, the exercise will be complete when the stock transfer form is signed.
We’ll also generate a share certificate for you to sign and issue to the new shareholder.
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