Why an option pool is needed and how to create one.
But what actually is an option pool? Essentially, it’s a pool of shares the company authorises and sets aside for its option holders.
The options are granted from this pool, and when the option holder exercises their options, they will convert into real shares in the company.
An option pool can be authorised over any share class (even growth shares) which is typically a commercial decision based on who the options are being granted to.
It’s worth noting that if the share class has rights to voting or dividends, for example, the option holder won’t have these rights until they have exercised their options and become a shareholder.
How does an option pool work?
An option pool of 10,000 is really the potential for 10,000 shares. If 1,000 options are granted to a recipient, the number of shares available in the option pool would go down to 9,000.
But only once the conditions of the scheme have been met and the options have been exercised would they become 1,000 shares.
But say an option holder doesn’t quite fulfil the conditions of the scheme, it’s possible to cancel some of their options and put them back in the pool.
Any options that remain in the pool – and options holders themselves – won’t be reflected on the cap table until they become shares/shareholders.
How do I create an option pool?
You can easily create and authorise an option pool through Vestd. Typically, directors’ and shareholders’ resolutions are needed to authorise an option pool – again this is all managed digitally via Vestd.
Whether you’re setting up an EMI or unapproved option scheme, you can grant options from the same option pool, if the options are from the same share class.
It’s worth adding that the option pool itself isn’t in any way connected to an option scheme. It’s simply where the shares are stored for future option holders, so there’s no need to create a pool for each scheme. Plus, option pools created on Vestd are valid for 5 years from the date of authorisation, so again the same pool can be used for many schemes.
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