What happens to employee options when a startup is acquired?
By SuLe · Updated 7 May 2026
On an acquisition, what happens to options depends on the scheme rules — but EMI options typically become exercisable on a sale, and holders exercise and sell their shares same-day into the deal. A takeover is an EMI disqualifying event, so a 90-day exercise window applies unless the options are rolled into the buyer.
Key facts
- EMI options usually become exercisable on a sale; holders commonly exercise and sell same-day.
- A company takeover is an EMI disqualifying event — a 90-day exercise window applies unless options are rolled over.
- Unapproved options trigger income tax on the exercise gain, usually with National Insurance via PAYE.
- The sale's drag-along provisions should expressly cover optionholders so the buyer can acquire 100%.
- The exact outcome always turns on the specific scheme rules — read them before you agree an exit.
What actually happens to options on a sale?
The scheme rules decide, so the first step in any deal is reading them. For a well-run EMI scheme, options typically become exercisable on a change of control, letting holders turn options into shares just as the sale completes.
In practice this is a same-day exercise-and-sell: the holder exercises, immediately sells the resulting shares to the buyer, and pockets the difference between the sale price and their exercise price. They never fund shares they intend to keep.
Unvested or out-of-the-money options may lapse instead. The mechanics vary scheme to scheme, which is exactly why the rules — not assumptions — govern.
Why is a takeover a "disqualifying event" for EMI?
EMI is a tax-advantaged scheme with conditions, and a company takeover is one of the events that disqualifies the existing options from continued EMI treatment. Once a disqualifying event happens, a 90-day exercise window applies: exercise within 90 days to preserve the favourable treatment built up to that point.
Miss that window and the tax position can worsen, because gains accruing after the event fall outside EMI's advantages.
The alternative is a rollover — by agreement, holders swap their options for equivalent options over the buyer's shares, which can avoid triggering the clock if structured properly. Whether rollover is available is a negotiation point in the deal. [More: What is an EMI share option scheme?]
How are unapproved options taxed differently?
Unapproved options — those outside a tax-advantaged scheme like EMI — are taxed as employment income. On exercise the holder pays income tax on the gain (broadly, market value at exercise minus the exercise price), and usually National Insurance collected through PAYE.
That is a heavier outcome than EMI, where qualifying gains can attract capital gains treatment instead of income tax. The gap can be substantial on a large exit.
For founders, the lesson is to know which of your grants are EMI and which are unapproved before a sale, because the after-tax value to your team differs sharply. [More: EMI vs unapproved options — what's the difference?]
| Feature | EMI options | Unapproved options |
|---|---|---|
| Tax at exercise on exit | Often capital treatment | Income tax on the gain |
| National Insurance | Generally not on the gain | Usually, via PAYE |
| Effect of takeover | Disqualifying event, 90-day window | Taxed on exercise gain |
| Same-day exercise-and-sell | Common | Common |
| Rollover into buyer | Possible by agreement | Possible by agreement |
Do optionholders get included in the sale?
They should, but only if the documents say so. Drag-along provisions — which let a majority force everyone to sell so a buyer can acquire 100% — must expressly cover optionholders, otherwise holders can sit outside the deal.
A buyer nearly always wants the whole company, so a drag that ignores options is a problem discovered at the worst moment. Fixing it late, mid-deal, needs individual consents you may not easily get.
Check before you go to market that your option documents and articles let the sale sweep in optionholders. [More: What are drag-along and tag-along rights?]
Worked example
Nadia holds EMI options over 50,000 shares with a £0.20 exercise price. Her company is acquired at £3.00 per share, and the scheme rules make options exercisable on the sale.
She exercises and sells same-day: she buys 50,000 shares for 50,000 × £0.20 = £10,000, then sells them into the deal for 50,000 × £3.00 = £150,000, a gain of £140,000. Because the takeover is an EMI disqualifying event, she exercises inside the 90-day window to protect the EMI treatment.
The deal's drag-along expressly covers optionholders, so the buyer acquires 100% cleanly. Had Nadia's options been unapproved, that £140,000 gain would have been taxed as employment income with NIC through PAYE — a materially worse result.
Where founders go wrong
Not reading the scheme rules before a deal
— whether options accelerate, lapse or roll over is set in the rules, not in market assumptions.Ignoring the 90-day EMI window
— a takeover is a disqualifying event; exercising late can strip away the tax advantage.Forgetting unapproved options are taxed as income
— the after-tax value to those holders is much lower; plan for it.Leaving optionholders out of the drag
— a buyer wants 100%; a drag that omits options creates a scramble for consents mid-sale.
Related questions
What happens to EMI options when the company is sold?
It depends on the scheme rules, but EMI options typically become exercisable on a sale. Holders usually exercise and sell their shares same-day into the deal, so they receive the difference between the sale price and their exercise price. [More: What is an EMI share option scheme?]
Is a takeover an EMI disqualifying event?
Yes. A company takeover is a disqualifying event for EMI, and a 90-day exercise window applies — unless the options are rolled over into the buyer's scheme by agreement. Miss the window after a disqualifying event and the tax treatment can worsen.
How are unapproved options taxed at exit?
Unapproved options trigger income tax on the gain at exercise — the difference between market value and the exercise price — and usually National Insurance collected through PAYE. That is heavier than the capital treatment EMI options can attract. [More: EMI vs unapproved options — what's the difference?]
Do optionholders get dragged into a sale?
They should. Well-drafted drag-along provisions expressly cover optionholders so a buyer can acquire 100% of the company. If the drag does not mention options, holders may sit outside the deal — a gap worth fixing before you sell.
What is option rollover?
Rolling options into the buyer means holders swap their target-company options for equivalent options over the buyer's shares, by agreement, instead of exercising now. It defers the outcome and, for EMI, can avoid the disqualifying-event clock if structured properly.
Whether your team walks away with a capital-taxed windfall or an income-taxed fraction of it comes down to your scheme rules, the 90-day EMI clock and whether the drag covers options — details easy to get wrong under deal pressure. A SuLe solicitor can check your option documents before you go to market. Book a free consultation with a startup solicitor so your team's options are handled cleanly at exit.
Keep reading: What is an EMI share option scheme? · EMI vs unapproved options — what's the difference? · What happens to share options when an employee leaves? · What are drag-along and tag-along rights? · Share sale vs asset sale — what's the difference for founders? · What legal prep does a startup need before an exit?
Primary sources: Companies Act 2006 · HMRC — Enterprise Management Incentives guidance
