Share Option Agreement EMI (UK)
Updated 30 July 2026
Share Option Agreement for EMI and non-tax-advantaged options in the UK.
SHARE OPTION AGREEMENT (UK)
Enterprise Management Incentives (EMI) and non-tax-advantaged options
Note: This template grants a share option to an individual over shares in a UK company. It supports two routes. The EMI route is the tax-advantaged scheme under Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003, and is the standard choice for a qualifying company. The non-tax-advantaged route is used where the company, the individual, or the shares do not meet the EMI conditions, for example where the grantee is a consultant or non-executive director rather than an employee. Choose the route at Clause 2.3 before completing anything else, because it affects several later Clauses. Complete every yellow field and complete Schedule 1.
0. PARTIES
This Share Option Agreement (the "Agreement") is made on [grant date] between:
(1) [full legal name of the company], a company incorporated in England and Wales with company number [company number of the company] whose registered office is at [registered office address of the company] (the "Company"); and
(2) [full name of the option holder] of [home address of the option holder] (the "Option Holder").
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, the following words have the following meanings:
"Articles" the articles of association of the Company in force from time to time.
"Business Day" any day other than a Saturday, Sunday, or public holiday in England and Wales.
"Control" has the meaning given in section 719 of the Income Tax (Earnings and Pensions) Act 2003.
"Disqualifying Event" an event that is a disqualifying event in relation to the Option under sections 533 to 536 of the Income Tax (Earnings and Pensions) Act 2003.
"EMI Code" the provisions of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 and the related provisions of that Act.
"Exercise Price" the price per Share payable on exercise of the Option, as set out in Schedule 1.
"Exit" a Sale or a Listing.
"Grant Date" the date stated at the top of this Agreement, being the date on which the Option is granted.
"Group" the Company and any company that is for the time being a subsidiary of the Company within the meaning of section 1159 of the Companies Act 2006.
"Listing" the admission of any of the Company's share capital to trading on a recognised stock exchange.
"Option" the right granted by this Agreement to acquire Shares on its terms.
"Option Shares" the number of Shares over which the Option is granted, as set out in Schedule 1.
"Sale" the sale or transfer of, or the grant of rights over, shares in the Company as a result of which a person, together with persons acting in concert with that person, obtains Control of the Company.
"Shares" ordinary shares in the capital of the Company of the class described in Schedule 1.
"Vested" in relation to the Option or part of it, that the vesting conditions in Clause 4 and Schedule 1 have been satisfied in respect of it, and "Vest" and "Vesting" are construed accordingly.
1.2 Clause headings do not affect interpretation. A reference to legislation is a reference to it as amended or re-enacted from time to time. "Including" and "in particular" are illustrative and do not limit the words that precede them.
2. GRANT OF THE OPTION
2.1 The Company grants to the Option Holder on the Grant Date an option to acquire [number of option shares] Shares at the Exercise Price, on the terms of this Agreement.
2.2 The Option is personal to the Option Holder. It may not be transferred, assigned, charged, or otherwise dealt with, and lapses immediately if the Option Holder purports to do so. The Option may be exercised by the Option Holder's personal representatives in accordance with Clause 7.4.
2.3 Tax status of the Option.
Option A (EMI option): The Option is granted under the provisions of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 and is intended to qualify as an enterprise management incentive option. The Company shall give notice of the grant to His Majesty's Revenue and Customs in accordance with paragraph 44 of that Schedule.
Option B (non-tax-advantaged option): The Option is not granted under Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 and is not intended to attract tax-advantaged treatment. Clause 10.3 applies on exercise.
Note: Choosing Option A is what makes this an EMI option. Paragraph 37(2)(b) of Schedule 5 requires the written agreement to state that the option is granted under that Schedule, so deleting the wording in Option A stops the option qualifying no matter what the parties intended. Notice of the grant must reach HMRC on or before 6 July following the end of the tax year in which the option was granted, under paragraph 44. Missing that deadline is the most common way a well-drafted EMI option loses its tax treatment, and it cannot be fixed after the fact except in limited circumstances.
Note: The company qualifies for EMI only if it meets the conditions in Schedule 5. The main ones are gross assets of no more than 120 million pounds (paragraph 12), fewer than 500 full-time equivalent employees (paragraph 12A), independence from any other company, and carrying on a qualifying trade. A company can grant EMI options over no more than 6 million pounds of unexercised options in total (paragraph 7). Different, lower limits apply to a specified Northern Ireland company: 30 million pounds of gross assets, fewer than 250 employees, and a 3 million pound company limit. Check which set applies before granting.
Note: The individual is eligible only if they are an employee or director of a Group company who spends at least 25 hours a week, or if less, at least 75 per cent of their working time, on the business of the Group (paragraph 26), and does not hold a material interest of more than 30 per cent of the ordinary share capital (paragraphs 28 and 29). A consultant, a non-executive director with a light time commitment, or a founder who already holds more than 30 per cent cannot be granted an EMI option. Use Option B for them.
2.4 The maximum value of unexercised options that may be held by the Option Holder under the EMI Code is [individual emi limit (250,000 pounds unless advised otherwise)]. The Option Holder confirms that the grant of the Option does not cause that limit to be exceeded.
Note: The individual limit under paragraph 5 of Schedule 5 is 250,000 pounds of unexercised qualifying options, measured by the market value of the shares at the date each option was granted. Options above that limit are not qualifying options. Where an individual already holds EMI options from an earlier grant, count them before granting more.
3. EXERCISE PRICE
3.1 The Exercise Price is [exercise price per share] per Share. The aggregate price payable on exercise of the whole Option is the Exercise Price multiplied by the number of Option Shares.
3.2 The Exercise Price is payable in full in cash on exercise, unless the Company agrees in writing to another method of settlement.
Note: Paragraph 37(2)(d) of Schedule 5 requires the agreement to state the exercise price, or the method by which it will be determined, so this Clause cannot be left blank. Setting the Exercise Price at or above the unrestricted market value of a Share at the Grant Date means the Option Holder pays no income tax when the Option is exercised. Setting it lower is allowed and is sometimes used to give the Option Holder value immediately, but the discount is taxed as employment income on exercise. Agreeing the valuation with HMRC before grant removes the argument later, and a valuation agreed for EMI purposes is normally accepted for a defined period.
4. VESTING
4.1 The Option Vests in accordance with the vesting schedule and any performance conditions set out in Schedule 1.
4.2 Unless Schedule 1 states otherwise, Vesting is conditional on the Option Holder remaining an employee or director of a Group company on each Vesting date.
4.3 The Company may waive or accelerate Vesting in whole or in part at any time by written notice to the Option Holder.
Note: Paragraph 37(3) of Schedule 5 requires any conditions affecting the extent of the entitlement, including performance conditions, to be set out in the agreement. Putting them in Schedule 1 satisfies that, provided Schedule 1 is completed. A four year vesting period with a one year cliff, so that a quarter vests after twelve months and the balance monthly or quarterly thereafter, is the most common arrangement in UK startups. State the schedule precisely, because a vague schedule is the most frequent cause of dispute when an option holder leaves.
5. EXERCISE OF THE OPTION
5.1 Exercise events.
Option A (exit only): The Option may be exercised only on or immediately before an Exit, and only to the extent it has Vested. This is the default position under this Agreement unless Schedule 1 states otherwise.
Option B (exercisable on vesting): The Option may be exercised at any time after it has Vested, subject to Clause 6 and to any exercise window specified in Schedule 1.
Note: Exit-only exercise is the usual choice for a private company. It stops option holders becoming minority shareholders while the company is still private, avoids the administrative burden of a growing share register, and means the Option Holder is never asked to pay for shares they cannot sell. Option B suits a company that wants employees to become shareholders earlier, and is more common where the shares carry a genuine market or a buyback mechanism. Paragraph 37(2)(e) requires the agreement to state when and how the Option may be exercised, so one of these Options must be chosen.
5.2 Method of exercise. The Option is exercised by delivering to the Company a duly completed notice of exercise in the form set out in Schedule 2, together with payment of the aggregate Exercise Price and any amount due under Clause 10. Exercise takes effect on the date the Company receives all of those items, or on any later date specified in the notice.
5.3 Partial exercise. The Option may be exercised over some only of the Vested Option Shares. The balance remains exercisable in accordance with this Agreement.
5.4 Allotment or transfer. Within 30 days of valid exercise, the Company shall allot and issue, or procure the transfer of, the relevant Shares to the Option Holder and enter the Option Holder in the register of members, subject to the Articles and to Clause 9.
6. LAPSE OF THE OPTION
6.1 The Option lapses on the earliest of:
(a) the [option expiry date (no later than the tenth anniversary of the grant date unless advised otherwise)];
(b) the date on which the Option Holder ceases to hold office or employment with a Group company, subject to Clause 7;
(c) the date on which the Option Holder purports to transfer, assign, or charge the Option in breach of Clause 2.2;
(d) the date on which a bankruptcy order is made against the Option Holder; and
(e) the expiry of any period for exercise on an Exit under Clause 8 without the Option having been exercised.
Note: An EMI option must be capable of exercise within 15 years of the Grant Date to qualify, under paragraph 36 of Schedule 5, and within 10 years for a specified Northern Ireland company. Many companies set a shorter expiry, commonly 10 years, because a long tail of unexercised options complicates a future sale. Whatever period is chosen, it must not exceed the statutory maximum for the company in question.
6.2 Disqualifying Events. If a Disqualifying Event occurs, the Company shall notify the Option Holder within [disqualifying event notice period (business days, e.g. 10)] Business Days. The Option does not lapse by reason of the Disqualifying Event alone, but Clause 10.2 applies.
Note: A disqualifying event includes the company ceasing to meet the qualifying conditions, the Option Holder ceasing to meet the working time requirement, and certain alterations to the share capital. Where the Option is exercised more than 90 days after a disqualifying event, section 532 of the Income Tax (Earnings and Pensions) Act 2003 applies a modified tax calculation, and any growth in value after the event is taxed as employment income rather than as a capital gain. Prompt notice matters because the Option Holder has only that 90 day window to act.
7. LEAVERS
7.1 Good leaver. If the Option Holder ceases to hold office or employment with a Group company by reason of death, ill health, injury, disability, redundancy, retirement, or the company employing them ceasing to be a Group company, or in any other circumstances the Company determines in writing, the Option Holder is a good leaver.
7.2 Consequences for a good leaver. The Option continues in force to the extent it has Vested at the date of cessation, and may be exercised in accordance with Clause 5 for a period of [good leaver exercise window (months, e.g. 12)] months after that date, after which it lapses. The unvested part of the Option lapses on cessation unless the Company determines otherwise.
7.3 Bad leaver. If the Option Holder ceases to hold office or employment in any other circumstances, including resignation or summary dismissal, the whole Option, whether Vested or not, lapses on the date of cessation unless the Company determines otherwise in writing.
Note: The line between a good and a bad leaver is the most negotiated term in an option agreement. Treating every resignation as a bad leaver is common in UK startups and is the position drafted here, but it means an employee who leaves after four years forfeits everything they earned, which damages the incentive the scheme was meant to create. A frequently used middle position is to let a resigning employee keep the Vested part but forfeit the unvested part. The Company's discretion in Clause 7.3 allows that outcome case by case, and Schedule 1 can record a different default.
7.4 Death. If the Option Holder dies, the Option may be exercised by their personal representatives, to the extent Vested at the date of death, within [death exercise window (months, e.g. 12)] months of the date of death, after which it lapses.
Note: Under the EMI Code an option must be exercised within 12 months of the option holder's death to keep its tax-advantaged treatment. Setting a longer window in this Clause would not extend that period.
8. EXIT AND CHANGE OF CONTROL
8.1 The Company shall notify the Option Holder as soon as reasonably practicable once it becomes likely that an Exit will occur. The Option, to the extent Vested, may then be exercised conditionally on the Exit completing, within the period notified by the Company, which shall not be less than [exit exercise window (business days, e.g. 10)] Business Days.
8.2 If the Option is not exercised on or before the Exit, it lapses on completion of the Exit unless the Company and the acquiring person agree that it will be exchanged under Clause 8.3.
8.3 Exchange of options. If a person obtains Control of the Company, the Option Holder may, if that person agrees, release the Option in consideration of the grant of a new option over shares in the acquiring company or its parent, on terms that are equivalent in value and, where the Option was granted under Option A of Clause 2.3, that satisfy the requirements of the EMI Code for a replacement option.
Note: A replacement option granted on a takeover can keep its EMI status if it meets the conditions in the EMI Code, including that it is granted within the permitted period after the change of control and is equivalent in value. Where the acquiring company does not itself qualify, the replacement option will not be an EMI option. This is worth checking before a sale rather than during it, because the outcome affects what option holders actually receive.
8.4 Drag along. If the Articles contain drag along provisions and they are validly exercised, the Option Holder shall, on exercising the Option, be bound by them in respect of the Shares acquired.
9. SHARES ACQUIRED ON EXERCISE
9.1 Shares issued or transferred on exercise of the Option rank equally in all respects with the Shares of the same class then in issue, except that they do not carry any right to a dividend or other distribution declared, paid, or made by reference to a record date before the date of exercise.
9.2 The Option Holder shall, if the Company requires, enter into a deed of adherence to any shareholders' agreement then in force, and is in any event bound by the Articles, in respect of the Shares acquired.
9.3 The Option confers no rights of a shareholder until the Option is exercised and the Option Holder is entered in the register of members. In particular, the Option carries no right to vote, to receive dividends, or to receive notice of or attend general meetings.
9.4 The Option Holder acknowledges that the Shares are subject to the restrictions on transfer set out in the Articles, that there is no market for the Shares, and that the value of the Shares may fall as well as rise.
Note: Shares acquired under an EMI option must be ordinary shares that are fully paid up and not redeemable. Where the Articles create a separate class of share for employees carrying restricted rights, check that the class still meets those requirements, because a share that is redeemable at the company's option will not qualify.
10. TAX AND NATIONAL INSURANCE
10.1 The Option Holder is responsible for all income tax and employee National Insurance contributions arising in connection with the Option. The Company may withhold from any amount payable to the Option Holder, or require the Option Holder to pay to the Company, any amount the Company is required to account for to His Majesty's Revenue and Customs in connection with the grant, Vesting, exercise, or disposal of the Option or the Shares. The Company is not obliged to allot, issue, or transfer any Shares until it has received that amount or is satisfied that arrangements have been made to pay it.
10.2 Where a Disqualifying Event has occurred and the Option is exercised more than 90 days after it, the Option Holder acknowledges that the tax treatment of the exercise is modified in accordance with section 532 of the Income Tax (Earnings and Pensions) Act 2003.
10.3 Employer National Insurance contributions. Where the Option is granted under Option B of Clause 2.3, or where a charge to employer National Insurance contributions otherwise arises, [employer nic position (state 'the company bears employer national insurance contributions' or 'employer national insurance contributions are transferred to the option holder')].
Note: Where a charge to employer National Insurance contributions arises on exercise, the liability can be transferred to the option holder or made the subject of a joint election, provided the arrangement is put in place properly. Transferring it reduces the company's cost but also reduces what the option holder takes home, so it is a commercial decision rather than a formality. On a qualifying EMI option exercised at or above market value, no income tax or National Insurance charge normally arises on exercise at all.
10.4 Nothing in this Agreement is a warranty by the Company as to the tax treatment of the Option or the Shares. The tax position depends on the Option Holder's own circumstances and on the law in force at the relevant time.
Note: Shares acquired on exercise of an EMI option can qualify for Business Asset Disposal Relief on a later sale, with the two year qualifying period running from the date the option was granted rather than from exercise. That is a meaningful advantage of the EMI route over a non-tax-advantaged option, and it is a reason not to delay the grant.
11. VARIATION OF SHARE CAPITAL
11.1 If there is a variation in the share capital of the Company by way of capitalisation, rights issue, subdivision, consolidation, or reduction, the number of Option Shares and the Exercise Price may be adjusted by the Company in a manner it considers fair and reasonable, provided that the aggregate Exercise Price payable is not materially increased and, where the Option was granted under Option A of Clause 2.3, that the adjustment does not cause the Option to cease to qualify under the EMI Code. The Company shall notify the Option Holder of any adjustment.
12. GENERAL
12.1 No employment rights. The Option does not form part of the Option Holder's contract of employment or engagement. The grant of the Option does not confer any right to continued employment or engagement, and no compensation is payable in respect of the Option or its lapse on termination of employment or engagement for any reason, including where that termination is later found to be wrongful or unfair.
Note: This Clause is included to prevent a claim that the lapse of an option on dismissal is itself a loss recoverable in an employment claim. It is standard in UK option agreements and is generally effective, though it does not prevent a claim relating to the dismissal itself.
12.2 Data. The Company may collect, hold, and process the Option Holder's personal data for the purposes of administering the Option, including disclosing it to His Majesty's Revenue and Customs, to Group companies, and to the Company's professional advisers, in each case in accordance with the Company's privacy notice.
12.3 Notices. Notices under this Agreement shall be in writing and sent to the Company at its registered office and to the Option Holder at the address given in this Agreement or the most recent address notified to the Company.
12.4 Entire agreement. This Agreement is the entire agreement between the Parties in relation to the Option and supersedes any previous agreement or understanding relating to it. Nothing in this Clause limits or excludes liability for fraudulent misrepresentation.
12.5 Variation and severance. No variation of this Agreement is effective unless it is in writing and signed by both Parties, and, where the Option was granted under Option A of Clause 2.3, any variation must not cause the Option to cease to qualify under the EMI Code. If any provision is or becomes invalid or unenforceable it shall be deemed modified to the minimum extent necessary, or if that is not possible, deleted, and the rest of this Agreement continues in force.
12.6 Third party rights. No term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to it.
12.7 Governing law and jurisdiction. This Agreement and any dispute or claim arising out of or in connection with it, including any non-contractual dispute or claim, is governed by the law of England and Wales. The courts of England and Wales have exclusive jurisdiction.
SIGNED BY THE PARTIES
For and on behalf of the Company
Signature:
Name: [signatory name of the company]
Title: [signatory title of the company]
Date: [signature date of the company]
Signed by the Option Holder
Signature:
Name: [signatory name of the option holder]
Title: [signatory title of the option holder]
Date: [signature date of the option holder]
SCHEDULE 1 - OPTION DETAILS
Note: Every field in Parts A to C must be completed. Paragraph 37 of Schedule 5 requires the written agreement to state the grant date, the number of shares, the exercise price or how it is determined, when and how the option may be exercised, and any performance conditions. An incomplete Schedule 1 can stop the option qualifying.
Part A - The Option
Grant Date: [grant date]
Option Holder: [full name of the option holder]
Number of Option Shares: [number of option shares]
Class of Shares: [class of shares (e.g. ordinary shares of 0.01 pounds each)]
Exercise Price per Share: [exercise price per share]
Tax status chosen (Clause 2.3): [tax status chosen (a - emi option, or b - non-tax-advantaged option)]
Option Expiry Date (Clause 6.1(a)): [option expiry date (no later than the tenth anniversary of the grant date unless advised otherwise)]
Part B - Vesting
Vesting schedule: [vesting schedule (e.g. 25 per cent on the first anniversary of the vesting commencement date, then in equal monthly instalments over the following 36 months)]
Vesting Commencement Date: [vesting commencement date]
Performance conditions: [performance conditions (or state 'none')]
Part C - Exercise and Leavers
Exercise basis chosen (Clause 5.1): [exercise basis chosen (a - exit only, or b - exercisable on vesting)]
Good leaver exercise window (Clause 7.2): [good leaver exercise window (months, e.g. 12)]
Bad leaver default position (Clause 7.3): [bad leaver default position (state 'whole option lapses' or 'vested option retained')]
Death exercise window (Clause 7.4): [death exercise window (months, e.g. 12)]
Exit exercise window (Clause 8.1): [exit exercise window (business days, e.g. 10)]
Disqualifying event notice period (Clause 6.2): [disqualifying event notice period (business days, e.g. 10)]
Part D - Tax
Individual EMI limit (Clause 2.4): [individual emi limit (250,000 pounds unless advised otherwise)]
Employer NIC position (Clause 10.3): [employer nic position (state 'the company bears employer national insurance contributions' or 'employer national insurance contributions are transferred to the option holder')]
Agreed market value at Grant Date, if any: [agreed market value per share at grant date (or state 'not agreed with hmrc')]
SCHEDULE 2 - NOTICE OF EXERCISE
To the directors of [full legal name of the company].
I, [full name of the option holder], give notice that I exercise the option granted to me on [grant date] in respect of [number of shares being exercised] Shares, and I enclose payment of [aggregate exercise price payable] being the aggregate Exercise Price, together with any amount due under Clause 10 of the Agreement.
I agree to be bound by the Articles and by any shareholders' agreement in force in respect of the Shares I acquire.
Signed: ................................... Date: [date of exercise notice]
About this template
What is this template?
Share Option Agreement EMI (UK) is a free, ready-to-use Commercial Contracts template you can open, customize, and download on GitLaw. It gives you a professionally structured starting point, so you never have to draft from a blank page. The wording is plain and modern, organized into clear sections that are easy to read, edit, and adapt to your own situation before you share or sign it.
When should you use it?
Reach for this Commercial Contracts template whenever you need a reliable agreement quickly and want to be sure the essentials are covered. It suits individuals, freelancers, startups, and established businesses alike. Instead of paying for a document drafted from scratch, you can start here, tailor the details to your arrangement, and have a polished draft ready in minutes. This version is drafted with England & Wales in mind, though you should always review the final wording against the laws that apply to you.
What's typically included?
A well-drafted Commercial Contracts usually sets out the parties involved, the scope of the agreement, and each side's rights and responsibilities. Expect sections covering key terms and definitions, how long the agreement lasts, how it can be ended, and what happens if something goes wrong. This template brings those building blocks together in a sensible order, so you can focus on the specifics rather than worrying about what to include. Open it to read the full document, then sign up to edit, negotiate, and e-sign it directly in GitLaw.