Equity grant
An equity grant gives an employee shares in the company, or a right to acquire them later, as part of their pay. The plan rules and the grant agreement set the terms, including any vesting schedule and what happens when the person leaves.
What an equity grant can be
“Equity grant” covers several instruments that behave differently:
- Share options. A right to buy shares later at a price fixed when the option is granted.
- Restricted shares. Shares issued now that the employee can lose if conditions, such as staying for a set period, are not met.
- Restricted stock units (RSUs). A promise to deliver shares, or sometimes their cash value, once conditions are met.
Vesting schedules, cliffs, acceleration on a sale and the window for a leaver to exercise options are not set by law. They come from the plan rules and the grant agreement, so write them into the offer letter rather than describing a “standard” package.
Equity grant tax rules in the UK and the US
UK: Enterprise Management Incentives. EMI is the tax-advantaged option scheme for smaller UK companies. From 6 April 2026 a company qualifies with gross assets of no more than £120 million and fewer than 500 full-time employees; for options granted on or before 5 April 2026 the limits were £30 million and 250 (HMRC guidance). Each employee can hold EMI options worth up to £250,000 over three years, and must work at least 25 hours a week or, if less, 75% of their working time. If the exercise price is at least the market value at grant and the option is exercised within the permitted period, there is no Income Tax or National Insurance on exercise; Capital Gains Tax may be due when the shares are sold. The April 2026 changes also raised the company-wide options limit from £3 million to £6 million and the exercise period from 10 to 15 years, which can apply to options that had not yet expired. Grants made on or after 6 April 2024 must be notified to HMRC by 6 July after the end of the tax year of grant (ETASSUM56010). Some trading activities are excluded altogether.
US federal income tax: ISOs, NSOs and 83(b). For incentive stock options, the employee generally has no taxable income at grant or exercise, though the alternative minimum tax may apply (IRS Topic 427). The favourable treatment on sale requires holding the shares for two years after grant and one year after exercise (Publication 525). For nonstatutory options without a readily determinable fair market value, the spread at exercise is taxed as income. Restricted shares are taxed when they substantially vest, unless the employee makes a section 83(b) election within 30 days of the transfer, which can be filed on Form 15620 and cannot be revoked without IRS consent.
Dilution: what a percentage means later
A grant expressed as a percentage only holds until the company issues new shares. Check the cap table before you quote one.
10,000 shares ÷ 1,000,000 shares = 1.0%; after 250,000 new shares: 10,000 ÷ 1,250,000 = 0.8%
1.0% becomes 0.8%
The number of shares stays the same while the total grows, so the holding shrinks even though nothing was taken away. Stating the share count and the total shares in issue gives the employee a figure they can check.
Fictional figures to show the arithmetic; not a benchmark for grant sizes.
Put the grant next to salary and benefits when you present total compensation, and say plainly which parts are fixed and which depend on a future sale or listing.
Sources and references
- GOV.UK: Enterprise Management Incentives (EMIs)
- GOV.UK: Expanding the eligibility limits of the Enterprise Management Incentive scheme
- HMRC Employee Tax Advantaged Share Scheme User Manual: ETASSUM56010, EMI notification deadlines
- IRS Topic no. 427: Stock options
- IRS Publication 525: Taxable and nontaxable income
- IRS Form 15620: Section 83(b) election