What happens to EMI options on an IPO?

EMI is only for unlisted companies. On IPO, no new EMI grants can be made. Existing EMI options remain qualifying, but a disqualifying event may occur (if the company ceases to be independent). Employees have 90 days to exercise after a disqualifying event to preserve the tax advantages. EMI (Enterprise Management Incentives) is only available to unlisted companies. When a company lists on a stock exchange (IPO), the treatment of existing EMI options: (1) No new grants — EMI options cannot be granted after the IPO (the company is no longer an unlisted company). (2) Existing options — existing EMI options that were granted before the IPO remain qualifying EMI options. The listing itself does not automatically disqualify them. (3) Disqualifying event — however, the listing may trigger a disqualifying event if the company ceases to be independent (e.g., if the listing involves a takeover or a change of control that means the company is no longer independent). A disqualifying event affects the tax treatment of the options if they are not exercised within 90 days. (4) Accelerated exercise — the EMI option agreement should include an accelerated exercise provision on IPO, allowing the options to be exercised immediately before or on the listing. This ensures that the employees can acquire the shares and participate in the IPO. (5) Exercise within 90 days — if a disqualifying event occurs, the employees have 90 days to exercise their EMI options. If exercised within 90 days, the EMI tax advantages are preserved (no income tax on exercise, 18% BADR on disposal). If exercised after 90 days, the EMI tax advantages are partially lost (income tax may be due on the gain). (6) Lock-up — the shares acquired on exercise may be subject to lock-up restrictions (the employees cannot sell the shares for a specified period after the IPO, typically 180 days). Relevant legislation: Schedule 5 ITEPA 2003, Paragraph 15 (qualifying company — not listed); Paragraph 39 (disqualifying events); Paragraph 40 (tax treatment after disqualifying events). Example: A company with EMI options plans to list on the London Stock Exchange. Before the IPO, the company exercises all outstanding EMI options (accelerated exercise) so that the employees hold the shares before the listing. The shares are subject to a 180-day lock-up after the IPO. If the EMI options had not been exercised before the IPO, a disqualifying event may have occurred, and the employees would have 90 days to exercise to preserve the tax advantages. Common mistake: Not including an accelerated exercise provision in the EMI option agreement. Without it, the options may not be exercisable on the IPO, and the employees may miss out on the IPO proceeds and the tax advantages.

Can I grant CSOP options after an IPO?

Yes. CSOP is available to listed companies. After the IPO, the company can grant CSOP options to employees, up to £60,000 per employee. The market value is determined by the stock exchange price. CSOP (Company Share Option Plan) is available to both listed and unlisted companies. After an IPO: (1) Existing CSOP options — CSOP options granted before the IPO remain qualifying. The listing does not affect existing CSOP options. (2) New CSOP grants — the company can continue to grant CSOP options after the IPO. CSOP is available to listed companies, with a limit of £60,000 per employee (based on market value at grant). (3) Market value — for listed companies, the market value of the shares is determined by the stock exchange price on the grant date (no need for HMRC valuation). This simplifies the valuation process. (4) Exercise price — the exercise price must be at or above the market value at grant (the stock exchange price). (5) Lock-up — shares acquired on exercise may be subject to lock-up restrictions, but the lock-up does not affect the CSOP tax advantages. (6) Listing rules — listed companies must comply with the listing rules for share schemes (e.g., disclosure of the scheme in the annual report, shareholder approval for certain schemes). (7) Employee communication — employees should be informed about the treatment of their CSOP options on and after the IPO, including the market value, the exercise process, and any lock-up restrictions. CSOP is a useful tool for listed companies to provide tax-advantaged share options to employees, alongside other share schemes (e.g., SAYE, SIP). Relevant legislation: Schedule 4 ITEPA 2003 (CSOP — available to listed companies); Listing Rules (share scheme requirements for listed companies). Example: A listed company grants CSOP options to its employees after the IPO. The share price on the grant date is £5 per share. The company grants options over 12,000 shares per employee (value £60,000, within the CSOP limit). The exercise price is £5 (market value). The options are qualifying CSOP options, with no income tax on exercise and 18% BADR on disposal. Common mistake: Assuming that CSOP is only for unlisted companies. CSOP is available to listed companies and is a useful tool for providing tax-advantaged options after an IPO, alongside other listed company share schemes (SAYE, SIP).

What is a lock-up period and how does it affect share schemes?

A lock-up period is a restriction preventing employees from selling shares acquired through share schemes for a specified period after an IPO (typically 180 days). The lock-up does not affect the tax treatment but delays the employees' ability to realise the value. A lock-up period is a restriction that prevents employees (and other shareholders) from selling their shares for a specified period after an IPO. Key points: (1) Purpose — lock-up periods are designed to stabilise the share price after the IPO by preventing a flood of shares onto the market. They give the market confidence that existing shareholders (including employees) are not immediately selling. (2) Duration — lock-up periods are typically 180 days (6 months) from the IPO date, but the exact period is negotiated with the underwriters and may vary. (3) Scope — the lock-up applies to shares acquired through share schemes (EMI, CSOP, unapproved options, RSUs) as well as shares held by founders, managers, and other existing shareholders. (4) Tax treatment — the lock-up does not affect the tax treatment of the shares. Income tax, CGT, and BADR are calculated based on the acquisition and disposal dates, not the lock-up period. However, the lock-up delays the employees' ability to sell the shares and realise the value. (5) Exercise before lock-up — employees who exercise their options before the IPO (accelerated exercise) acquire the shares before the lock-up, but they cannot sell the shares until the lock-up expires. (6) Exercise during lock-up — employees who exercise their options during the lock-up period acquire the shares, but cannot sell them until the lock-up expires. The employees may need to fund the exercise price without being able to sell the shares immediately. (7) Planning — the lock-up period should be factored into the pre-IPO planning. Employees should be informed about the lock-up and its implications for their share scheme participation. Relevant legislation: Listing Rules (lock-up agreements); underwriting agreements (lock-up terms); Schedule 5 ITEPA 2003 (EMI — no specific lock-up rules); Schedule 4 ITEPA 2003 (CSOP — no specific lock-up rules). Example: A company lists on the stock exchange on 1 March 2026. Employees who exercised their EMI options before the IPO hold shares that are subject to a 180-day lock-up. They cannot sell the shares until 28 August 2026 (180 days after 1 March). The lock-up does not affect the EMI tax advantages, but the employees must wait 6 months before they can sell the shares and realise the value. Common mistake: Exercising options during the lock-up period without considering the cash flow implications. The employee must pay the exercise price (and potentially income tax on exercise for unapproved options) but cannot sell the shares until the lock-up expires. This can create a significant cash flow burden.

Should I exercise my EMI options before an IPO?

It depends. If the options are in-the-money and the 2-year BADR holding period is met, exercising before the IPO can be beneficial (the shares participate in the IPO, and the gain qualifies for 10% BADR). If the 2-year period is not met, deferring exercise may be better. The decision to exercise EMI options before an IPO depends on several factors: (1) In-the-money — if the exercise price is below the expected IPO share price, exercising before the IPO allows the employee to acquire the shares at the lower exercise price and participate in the IPO upside. (2) 2-year BADR holding period — the gain on disposal qualifies for 10% BADR if the EMI options were held for at least 2 years before the disposal. The holding period starts from the date of grant (not exercise). If the 2-year period is met, exercising before the IPO and selling after the lock-up qualifies for 10% BADR. If the 2-year period is not met, BADR is not available, and the gain is subject to CGT at 24%. (3) Disqualifying event — if the IPO triggers a disqualifying event, exercising within 90 days preserves the EMI tax advantages. Exercising before the IPO avoids the 90-day deadline pressure. (4) Lock-up — if the options are exercised before the IPO, the shares are subject to the lock-up period (the employee cannot sell the shares for 180 days). The employee must be prepared to hold the shares during the lock-up. (5) Cash flow — exercising the options requires paying the exercise price. The employee must have the funds to pay the exercise price (and potentially income tax on exercise for non-qualifying options) without being able to sell the shares immediately. (6) Risk — if the share price falls after the IPO, the employee may have paid the exercise price for shares that are now worth less. The employee bears the market risk during the lock-up period. (7) Accelerated exercise — the EMI option agreement should include an accelerated exercise provision on IPO, allowing the options to be exercised immediately before the listing. Specialist advice is essential to determine the best strategy for each employee. Relevant legislation: Schedule 5 ITEPA 2003 (EMI — exercise and tax treatment); TCGA 1992, Section 169I (BADR — 2-year holding period from option grant); Listing Rules (lock-up). Example: An employee holds EMI options (exercise price £5, granted 3 years ago). The expected IPO price is £15. If they exercise before the IPO (cost £5 per share) and sell after the 180-day lock-up at £15, the gain is £10 per share, taxed at 10% BADR (2-year holding period met). If they wait until after the IPO and a disqualifying event occurs, they have 90 days to exercise. If they miss the 90-day window, the EMI tax advantages are partially lost. Common mistake: Exercising EMI options before the IPO without considering the 2-year BADR holding period. If the holding period is not met, the gain is subject to CGT at 24% (not 10% BADR), significantly increasing the tax cost.

What share schemes should a listed company offer?

Listed companies typically offer a combination: CSOP (tax-advantaged, up to £60k per employee, for senior staff), SAYE (all-employee savings-linked options), SIP (all-employee share acquisition, most tax-advantaged), and unapproved options/RSUs (for larger awards above the CSOP limit). Listed companies typically offer a combination of share schemes to meet different objectives: (1) CSOP — a tax-advantaged option scheme for senior employees and key staff. CSOP provides no income tax on exercise (if exercise price ≥ market value at grant) and 18% BADR on disposal, with a limit of £60,000 per employee. CSOP is best for targeted incentives for key employees. (2) SAYE (Sharesave) — an all-employee savings-linked option scheme. Employees save £5-£500 per month for 3, 5, or 7 years, receive a tax-free bonus, and can buy shares at a discount (up to 20%). SAYE is best for broad-based employee participation and is low-risk for employees (they can take the cash if they don't want the shares). (3) SIP (Share Incentive Plan) — an all-employee share acquisition scheme. Employees can receive free shares (up to £3,600/yr), buy partnership shares from pre-tax salary (up to £1,800/yr), and receive matching shares (up to 2:1). SIP is the most tax-advantaged scheme (no income tax, NIC, or CGT on shares held for 5+ years). SIP is best for promoting broad-based employee share ownership. (4) Unapproved options and RSUs — for awards above the CSOP limit (£60,000), or for employees who do not qualify for tax-advantaged schemes. Unapproved options and RSUs are taxed as employment income on exercise/vesting, but they provide flexibility (no limits, no qualifying company requirements). (5) Combination — many listed companies offer all four schemes: CSOP for senior staff, SAYE and SIP for all employees, and unapproved options/RSUs for large awards. This combination provides tax efficiency, broad-based participation, and flexibility. The specific mix depends on the company's objectives, budget, and employee demographics. Specialist advice is recommended to design the right combination of schemes. Relevant legislation: Schedule 4 ITEPA 2003 (CSOP); Schedule 3 ITEPA 2003 (SAYE); Schedule 2 ITEPA 2003 (SIP); ITEPA 2003, Part 7 (unapproved options and RSUs); Listing Rules (share scheme requirements for listed companies). Example: A listed company with 500 employees offers: CSOP (for its 20 senior executives, up to £60,000 each), SAYE (for all 500 employees, up to £500/month savings), SIP (for all 500 employees, up to £3,600 free shares + £1,800 partnership shares + 2:1 matching), and unapproved RSUs (for the 5 most senior executives, for awards above £60,000). The combination provides tax-advantaged incentives for senior staff, broad-based participation for all employees, and flexibility for large awards. Common mistake: Offering only unapproved options/RSUs when tax-advantaged schemes (CSOP, SAYE, SIP) are available. Tax-advantaged schemes can save employees significant tax, and failing to use them can result in employees paying much more tax than necessary.

Share Schemes › Planning

Share Schemes on IPO

When a company lists on a stock exchange, share schemes face new rules. Understand how EMI/CSOP options are treated on IPO, lock-up periods, and how to structure schemes for a listing.

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When a company lists on a stock exchange (IPO), its share schemes face significant changes. EMI options cannot be granted after the IPO (EMI is only for unlisted companies), and existing EMI options may be affected. CSOP can continue (it is available to listed companies). Unapproved options and RSUs can continue but are subject to new rules (e.g., prospectus requirements, lock-up periods). Understanding how share schemes are treated on an IPO is essential for companies planning to list and for employees holding options.

EMI on IPO

EMI is only available to unlisted companies. When the company lists: (1) No new EMI grants — EMI options cannot be granted after the IPO. (2) Existing EMI options — existing EMI options remain qualifying (the listing does not automatically disqualify them), but a disqualifying event may occur. (3) Disqualifying event — the listing may be a disqualifying event if the company ceases to be independent. If a disqualifying event occurs, the employees have 90 days to exercise their EMI options to preserve the tax advantages. (4) Accelerated exercise — the EMI option agreement should include an accelerated exercise provision on IPO, allowing the options to be exercised immediately before the listing.

CSOP on IPO

CSOP is available to both listed and unlisted companies. When the company lists: (1) Existing CSOP options — remain qualifying (the listing does not affect existing CSOP options). (2) New CSOP grants — can continue after the IPO (CSOP is available to listed companies, up to £60,000 per employee). (3) Market value — the market value of the shares is determined by the stock exchange price (no need for HMRC valuation). (4) Lock-up — CSOP shares may be subject to lock-up restrictions (the employees cannot sell the shares for a specified period after the IPO).

Unapproved Options and RSUs on IPO

Unapproved options and RSUs can continue after an IPO, but they are subject to new rules: (1) Prospectus — if the company offers unapproved options or RSUs to a large number of employees, it may need to publish a prospectus (though employee schemes are generally exempt). (2) Lock-up — the shares acquired on exercise/vesting may be subject to lock-up restrictions (typically 180 days after the IPO). (3) Market value — the market value is determined by the stock exchange price. (4) Listing rules — listed companies must comply with the listing rules for share schemes (e.g., disclosure, shareholder approval for certain schemes).

Pre-IPO Planning

Before an IPO, the company should: (1) Review all share schemes — assess the treatment of EMI, CSOP, and unapproved options on the IPO. (2) Exercise EMI options — consider exercising EMI options before the IPO (if the options are in-the-money and the 2-year BADR holding period is met). (3) Accelerated exercise — ensure the EMI option agreements include accelerated exercise provisions on IPO. (4) Lock-up — plan for the lock-up period (employees cannot sell shares for 180 days after the IPO). (5) New schemes — consider establishing a new share scheme for the listed company (e.g., a CSOP or a listed company share plan). (6) Employee communication — communicate with employees about the treatment of their options on the IPO. Specialist advice is essential before an IPO.

Key Points

What You Need to Know

EMI options cannot be granted after an IPO (EMI is only for unlisted companies)
Existing EMI options remain qualifying, but a disqualifying event may occur
CSOP can continue after an IPO (available to listed companies, up to £60,000 per employee)
Shares acquired on exercise/vesting may be subject to lock-up restrictions (typically 180 days)
Pre-IPO planning is essential to maximise tax efficiency and preserve EMI advantages

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Share Schemes Frequently Asked Questions

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All Share Schemes Topics

EMI Eligibility & Qualifying Companies EMI Tax Advantages Company Share Option Plan (CSOP)Growth Shares Business Asset Disposal Relief (BADR)Share Schemes on Exit Save As You Earn (SAYE / Sharesave)Unapproved Options & RSUs Share Incentive Plan (SIP)Employee Ownership Trusts (EOTs)Share Valuation for EMI & CSOP HMRC EMI Notification & Reporting Phantom Shares & Cash-Settled Awards Share Schemes on IPO

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