The Equity Grants process step by step
- Decide the instrument (options, restricted shares, growth shares) and size
- Confirm there is enough headroom in the approved option pool or authorised share capital
- Get board approval, recorded in board minutes or a written resolution
- Issue a signed grant agreement setting out vesting, strike price if any, and leaver terms
- Update the cap table and share register or option register
- File any required tax scheme notification, such as EMI in the UK
Setting the strike price for options
For tax-advantaged schemes like EMI, the strike price is usually set at the current fair market value of the shares, which for early companies is often based on the price paid by investors in the most recent round, discounted for factors like minority stake and lack of marketability, and checked against the option pool still available.
A UK company that raised its last round at 5.00 per share might value common shares at 2.50 to reflect the difference in rights between ordinary and preferred shares. Options granted at that 2.50 strike price would need the share value to rise above 2.50 before the employee is in profit, and only once their vesting schedule allows exercise.
Leaver terms in an equity grant
| Leaver type | Typical treatment |
|---|---|
| Good leaver (e.g. retirement, redundancy) | Keeps vested shares/options, may get pro-rated extra vesting |
| Bad leaver (e.g. dismissal for cause) | Often forfeits vested and unvested equity, sometimes at nominal value |
| Voluntary resignation | Keeps vested amount, unvested is forfeited |
Leaver definitions and the exercise window after leaving (commonly 90 days for stock options) should be set out clearly in the grant agreement to avoid disputes later.
Documenting Equity Grants
- Board resolution approving the grant
- Signed option or share agreement
- Vesting schedule attached or referenced
- Scheme notification filed where relevant
- Cap table and option register updated
Grant approval questions we hear often
- Can a grant be backdated?
- No. The effective date is generally the date of proper board approval, not an earlier informal agreement or offer letter date.
- What happens if the option pool runs out?
- The board must approve an increase to the pool, which usually dilutes existing shareholders, before further grants can be made.
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.