Both represent an option to purchase shares for a fixed price in the future, once you have met specific criteria that can be either time or performance based, or both.
You will be able to see your options, and the conditions associated with them, in your recipient portal on Vestd. This will also show, in one place, any other shareholdings or options you have with other companies that are using Vestd.
Once you have exercised the options you will be the owner of shares in the company. What class of share these belong to, and the rights they have, will be predetermined in the Option agreement.
The difference between EMI and Unapproved options is in their tax treatment by HMRC.
EMI is a tax advantaged scheme set up by the government to encourage share ownership amongst small and medium companies. There are quite strict rules for qualification both for the company itself and the individuals. The company also needs to meet the ongoing reporting requirements to HMRC. Vestd will prompt you any time a notification is due.
For the recipient, the main criteria is that they are, and continue to be, employed by the company for at least 25 hours per week or 75% of their working time. Additionally they must have no more than a 30% equity stake in the business. There are also other criteria.
If applicable, EMI is very tax advantageous for you. On exercise, so long as all criteria have been met, including the exercise date being within 10 years of date of grant, you are only liable to pay tax on the difference between what you pay for the shares and the value of them when they were awarded to you. You will see this information displayed on the platform when you accept the options.
When you eventually sell the shares you will be liable to pay Capital Gains Tax, on the difference between their value when they were granted to you and the final sale price. This is currently at the discounted Entrepreneur's relief rate of 10%, but only if the options or resulting shares have been held for at least two years. If they have not, normal Capital Gains Tax applies.
Unapproved options, however, have very few limitations associated with them, but are treated as income whenever you exercise them. That is to say that you will incur an income tax liability upon exercise that is the difference between the price that you pay for them, and their value when you exercise them.
When you eventually sell the shares you will be liable to pay Capital Gains Tax (not at a discounted rate), on the difference between their value when they were exercised by you and the final sale price.
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