A step by step guide to designing your option scheme on Vestd
This article covers how to design either an Unapproved, or an EMI Option Scheme on Vestd.
Once you have your EMI Valuation (only in the case of EMI options), and have authorised an Option Pool, you are ready to design your Option Scheme.
If you are a Pro Customer, and have had us digitise your own agreement template or have made changes to our original agreement, you will have the option to select which document you would like to use here.
Please note that you will need to select the options in the rest of the scheme design that sit within your agreement – for example the Good Leaver Bad Leaver section would need to be already in your agreement.
First, log onto our platform, and click Dashboard on the top left:
Here, under EMI & Options, click View and distribute.
At the top of this page you will see three boxes:
If you already have a scheme designed and want to distribute options through it, click the first box.
Depending on whether you want to design an Unapproved, or an EMI scheme, click the relevant box.
Whether you choose EMI or Unapproved, you will be taken to a page that looks the same:
First, give your scheme a name for reference.
If you are a Pro Customer, and have had us digitise your own agreement template, you will have the option to select which document you would like to use here:
From here, scroll down and you will have to fill in the following:
- Exercise Price, which will affect how much tax the recipient will pay upon exercise.
- Exercise conditions, i.e. are the Options Exercisable: In the Exercise Period (which you also select below); or on Exit Event.
- If you choose "Exit Event", you will also have the option of setting the options to convert to Exercisable after a certain number of years. You can also select "Never" for this option.
- If you choose “Exit Event”, you will also have the option of setting the Days notice for an Exit event, typically 14 days but you may need to lower this if the exit is commercially sensitive.
- Criteria (to qualify for this option). Although most used is only time based vesting, you can also add certain performance criteria.
- File, although this is optional and rarely used, to either add to or replace the Criteria
Almost there! Now you need to set the Vesting Schedule (if you want to set one).
If you choose not to use one and not to have the shares vest automatically, vesting of the options will be entirely manual, and in your control.
If you choose not to use a vesting schedule, but turn on Automatic Vesting, everything will vest all at once once the Vesting Duration period has passed.
You will still need to set a vesting duration, this is the date by which all of the options will have to vest.
If you do choose to use a vesting schedule, the page will look slightly different:
The Cliff Date and Cliff Shares part might sound confusing. All it means is this: the Cliff Date is the date on which the recipient will have their first set of Options vest. The Cliff Shares percentage defines what percentage of their total shares becomes available on the Cliff Date. The Vesting Frequency is how often the Options vest after that: Monthly, Quarterly, Half-Yearly, or Yearly.
If you leave all of these blank, the recipient's options will start vesting immediately, at the frequency you choose.
Back-weighted vesting will allow you to vary the options that vest each year so that, for example, a larger proportion vest in subsequent years.
You can also choose how you want partial shares to be distributed throughout the tranches. Since only whole shares can vest, the decimals can either all be added into the last tranche, or cleaned up whenever there is a whole number.
If you choose for the shares to not vest automatically, you will need to do so manually as they become due.
Finally, you can decide whether all vesting will be accelerated in the case that there is an Exit Event.
The last section will ask you to select a leaver clause:
You will have a few options:
- Keep vested shares If a good leaver the recipient will receive the number of shares already vested, any remaining shares will be cancelled. They will be able to be exercised based on the existing exercise criteria. If a bad leaver the lose everything option will apply.
- Allow vested shares to be exercised If a good leaver the recipient will receive the number of shares already vested, any remaining shares will be cancelled. They will then need to exercise within 90 days. Any shares not exercised within this time frame will then also be cancelled. If a bad leaver the lose everything option will apply.
- Lose everything On leaving any options not already exercised will be cancelled and the recipient will receive nothing further.
- Complete discretion On departure the company decides how many shares the recipient gets and the exercise timescale. This is not preferable from an HMRC perspective as material changes can be deemed by HMRC to create a new commercial agreement.
Once this is done, just click Save at the bottom of the screen, and:
Congratulations! You are now ready to start adding recipients.
For each new recipient, just fill in their details and how many shares you want to give them.
Then click Save and add another, much faster now that the scheme is in place.
If you would now like to upload your own signed agreements against each distribution, follow these steps.