Change of control provision stock options

The grant notice, option agreement and employee consent must be submitted to trustee within 90 days of grant approval. There is no specific scheme for startups. The tax regime which applies to all qualified small business corporations QSBC , private companies controlled by Canadian residents, is very good.

In the Canadian government tried to roll back some of the tax-benefits, but backed down following strong resistance, particularly from the tech sector. For smaller private companies, the most tax-efficient way to reward employees with equity-based incentives is the BSPCE scheme. It was introduced in and amended a few times since. In effect, it is more like an RSU instrument than a pure stock-option, but is tax advantaged.

Eligibility for the scheme is fairly broad, has major advantages, and is used by almost all French tech startups. A few startups also use a tax-advantaged Free Shares scheme, but mostly for employees based outside France.

Rules are complex and have changed frequently. First, they immediately widened the scope of the scheme so that non-French companies could also issue BSPCE's to their employees in France. Second, they intend to introduce a 'fair-market valuation' system that will allow startups to offer BSPCE's with a strike price significantly below last-round valuation. Detailed guidance is unlikely to be issued before Summer The January government announcement offers an assured valuation mechanism. However, detailed guidance will not be issued until Summer Minority shareholders have rights to be informed, but not consulted, if there is already majority support for corporate decisions.

The Terms Of Your Options

Introduced in , and modified a few times since, the Enterprise Management Incentive scheme or EMI, is a highly advantageous stock option scheme which is used by almost all UK tech startups. For larger startups and private companies, the situation is more complex. However, these are complex to setup, and usually only suitable for senior employees. Independent — i. Unapproved scheme: The default scheme for larger companies. Available to both employees and non-employees.

Growth shares: Individually-designed RSU -like grant dependent upon company hitting sufficiently high hurdles to satisfy tax authorities, e. Companies can match up to two additional free shares for each that is bought.

Unapproved: No assured valuation. Company can choose price, but usually at last-round valuation to avoid additional tax. Growth shares: No assured valuation. Independent valuation is critical for plan to be defensible to tax authorities.

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Nominal value will need to be paid for the shares themselves. Minority shareholders have rights to be informed, but not consulted if there is already majority support for corporate decisions. EMI plans are relatively easy to set up and to maintain with standard templates and online registration and submissions. Independent valuations are strongly recommended, but not legally required. In practice rarely used in all-employee schemes. Tax clawback is otherwise possible. Corporate tax deduction equal to gains made by employees. The costs of setting up and administering the scheme can also be deducted.

Unapproved: At exercise, employer national insurance tax due This is sometimes transferred to employees. Virtual stock option plans are almost always used because there is no tax-favoured scheme, and non-voting shares are not possible. However, virtual options are taxed as capital gain at the point of sale. No specific tax-favoured scheme. However, virtual options are treated very favourably. Whilst this makes them economically valuable, they do not represent true employee ownership.

Most startups allow leavers to retain vested virtual options. Some require exercise within 90 days. Others allow leavers to retain, but not exercise until exit. Companies can choose between two main forms of stock option : incentive stock option ISO and non-qualified stock option NSO. The differences are outlined in the table below.

For early-stage companies starting in, or expanding into the US, we recommend setting up an ISO from the outset.

This option is more favourable to employees if held and exercised within specific time frames. The benefits of an ISO outweigh the slightly higher setup costs. Varies according to prefs structure and closeness to exit. At point of sale although in practice execs and senior staff also often taxed at point of exercise. New tax code Section 83 i allows employees except most senior to exercise and defer tax up to five years, or until shares become tradeable. At point of exercise, may be an income adjustment for alternative minimum tax AMT purposes, up to If holding requirements not met, treated as a NSO, and taxed as income at point of exercise see detail opposite.

Unvested Options

At point of exercise, subject to income tax 10— At point of sale if later than exercise , subject to short term or long term capital gains tax depending on how long share held. Short term capital gains tax rate is the same as income tax rates. There is no specific scheme for startups, but the tax regime which applies to qualifying private companies is quite good.

It defers tax to sale and at capital gains rates. Fairly straightforward to set up, but startups need to incorporate as Joint Stock companies and not Limited Companies to qualify.

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Minority shareholders have rights to be consulted on a range of issues. Options can convert to non-voting shares to avoid complexities. A tax advantaged scheme for innovative startups was launched in , and extended in Under the scheme, options are taxed only at point of sale and at capital gains tax rates. Typically use the valuation from last funding round. It is usually necessary to get tax and legal advice while setting up plans, but they are relatively easy to maintain.

Minority shareholders have extensive rights to be consulted on corporate decisions so most startups use non-voting shares to avoid complexity. Following sustained pressure from local tech entrepreneurs, the Swedish government introduced a tax-favoured scheme QESO in January This scheme allows capital gains tax to be applied to stock options granted by smaller startups up to 50 employees. Employees must remain with the company for 3 years after grant. Above the 50 employee QESA limit, companies usually use a warrants scheme teckningsoptioner.

Employees need to purchase the warrants upfront — a major disincentive. But they then benefit from capital gains tax rates on any upside, deferred to the point of sale. Standard stock options are less often used by startups, since they trigger high income tax and social charges at the point of exercise — and social fees for the company — as well as capital gains tax at sale.

Some later-stage startups including Spotify do use them, as the cost and complexity of using warrants becomes prohibitive. The strike price is usually set at the last investment round price. The employee has to pay for the warrant, based on a Black-Scholes formula. The scheme defers taxation on stock options to sale rather than exercise, and at capital gains tax rates. KEEP has not been widely used.

It remains to be seen if the scheme will catch on. No assured valuation Typically use the valuation from last funding round.