Why some companies go broad-based
Some founders extend equity to most or all employees rather than concentrating it among senior hires, sizing the option pool wide enough to cover them. The argument is that everyone contributing to the company's growth should share in its upside, and that broad ownership improves retention and day to day motivation.
The trade-off is dilution. Every additional grant of stock options reduces the percentage held by founders and existing investors, so broad-based plans need clear sizing rules to stay sustainable across future funding rounds.
Common employee ownership models
- Broad-based option pool: most or all employees receive options as part of standard offer packages
- Employee Ownership Trust (UK): a trust holds a controlling stake on behalf of all employees, often used when founders sell the business
- Profit-sharing schemes: cash-based, not equity, but sometimes paired with equity grants
- Employee share purchase plans: employees buy shares, sometimes at a discount, rather than receiving them free
Employee Ownership Trusts in the UK
An EOT is a trust structure that can hold a controlling interest in a company for the benefit of all employees. Founders selling to an EOT can qualify for full Capital Gains Tax relief on the sale, subject to conditions, which makes it a distinct route from a private equity or trade sale.
An EOT sale usually means founders relinquish control gradually, funded by the company's future profits rather than a single upfront cash payment, so it suits companies with steady cash flow more than high-growth, loss-making startups.
Considerations before adopting broad-based ownership
| Consideration | Question to answer |
|---|---|
| Pool size | How much dilution can founders and investors accept long term? |
| Tax scheme fit | Does the local scheme (EMI, BSPCE) support broad eligibility? |
| Administration load | Can the company manage many small grants accurately? |
| Communication | Do employees understand what the equity is actually worth? |
Broad-based ownership, answered
- Does broad-based ownership dilute investors as much as founders?
- Dilution from the option pool is typically shared proportionally across all existing shareholders, including investors, unless a round is structured with a pre-money pool top-up that shifts the cost mostly to founders.
- Is an Employee Ownership Trust the same as giving all staff share options?
- No. An EOT holds a controlling stake collectively on behalf of employees, usually after a founder sale, while options are individual grants to each employee.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.