What happens to share options when an employee leaves?
By SuLe · Updated 9 May 2026
When an employee leaves, their unvested options normally lapse, and their vested options are dealt with by the scheme rules — kept, lapsed, or exercisable for a short window depending on leaver status. For EMI, leaving is also a disqualifying event: the option must be exercised within 90 days to keep its full tax treatment.
Key facts
- Unvested options normally lapse on the employee's last day.
- Vested options follow the scheme rules — they may lapse, stay exercisable briefly, or turn on good/bad leaver status.
- Leaving employment is an EMI disqualifying event; exercise within 90 days preserves full EMI tax treatment.
- A 90-day exercise window is common precisely because it matches the EMI rule.
- Exit-only options cannot be exercised until a sale, so leavers often forfeit them under the rules.
What happens to share options when an employee leaves?
Two things happen at once: the unvested options fall away, and the vested options are governed by the leaver provisions. The split between vested and unvested is the first question to answer on any departure.
Unvested options represent equity not yet earned, so they lapse as standard on the leaving date. There is rarely any argument about this — it is the point of vesting.
The vested options are where the scheme rules do their work, and where good and bad leaver status, exercise windows and the EMI 90-day rule all come into play. [More: What vesting schedule should employee options have?]
What is the difference between vested and unvested options?
Vested options are the ones the employee has earned by staying long enough; unvested options are the rest. Only the vested portion can survive a departure at all.
On a four-year, one-year-cliff schedule, an employee leaving at month 30 has vested 30/48ths of their grant. That vested slice is potentially theirs; the remaining unvested options lapse.
Whether they can actually turn those vested options into shares depends on two further things: whether the scheme is exit-only, and what the leaver rules say. [More: What is a vesting cliff?]
How long do leavers have to exercise?
If the scheme lets options be exercised on leaving, there is usually a short window — commonly 90 days. Miss it and the vested options lapse too.
That 90-day figure is not a coincidence. It matches the EMI rule that, after a disqualifying event, the option must be exercised within 90 days to keep full EMI tax treatment, so aligning the two keeps the tax and the scheme in step.
Exit-only schemes work differently. Because nothing can be exercised until a sale, vested options are either forfeited on leaving or held over solely for an exit, exactly as the rules provide — there is no 90-day exercise to take. [More: How do I set up an EMI scheme?]
What is a disqualifying event for EMI?
A disqualifying event is something that breaks an EMI condition after grant. Leaving employment is the obvious one; so is an employee's working time dropping below the 25-hour or 75% threshold, or the company being taken over.
After a disqualifying event, the clock starts: exercise within 90 days and the option keeps its full EMI treatment. Exercise later, and growth in value after those 90 days can be taxed as employment income rather than falling into the capital-gains regime.
So a leaver with valuable, exercisable EMI options faces a real deadline — and a decision about whether to pay to exercise into shares they may not easily sell.
Does good leaver / bad leaver status matter?
Often, yes — it can decide whether vested options survive at all. Scheme rules typically split leavers into good and bad, mirroring the leaver logic in shareholders' agreements.
Good leavers — for example, redundancy, ill health, or leaving on agreed terms — usually keep some or all vested options. Bad leavers — dismissal for misconduct, or breach — frequently forfeit even vested options.
The definitions and consequences live in the scheme rules, so they need drafting with the same care as the good/bad leaver terms for founder shares. [More: What are good leaver and bad leaver provisions?]
| On leaving | Unvested options | Vested options |
|---|---|---|
| Good leaver, exercisable scheme | Lapse | Kept; exercise within the window (often 90 days) |
| Bad leaver, exercisable scheme | Lapse | Often forfeited |
| Any leaver, exit-only scheme | Lapse | Held for exit or forfeited, per the rules |
| EMI tax angle | N/A | Exercise within 90 days of leaving to keep full EMI treatment |
Worked example
Ella runs Portway, a fintech startup, and grants her operations manager an EMI option over 20,000 shares at £0.40 (the agreed market value), on a four-year, one-year-cliff schedule that is exercisable as it vests.
The manager leaves amicably at month 36 as a good leaver, having vested 36/48ths — 15,000 options. The remaining 5,000 unvested options lapse.
Leaving is a disqualifying event, so to keep full EMI treatment the manager must exercise within 90 days. They pay 15,000 × £0.40 = £6,000 to acquire the shares inside the window, preserving the capital-gains treatment for the eventual sale. Had they waited past 90 days, growth after that point could have been taxed as income.
Where founders go wrong
Not aligning the exercise window with the EMI 90-day rule.
A mismatch can leave a leaver exercising within the scheme window but outside the EMI window, losing the tax treatment.Being vague about vested options on leaving.
If the rules do not spell out good/bad leaver treatment, every departure becomes a negotiation.Forgetting exit-only options cannot be exercised on leaving.
Under an exit-only scheme, a leaver usually cannot bank vested options — set expectations early.Overlooking the disqualifying-event clock on a takeover.
An acquisition is also a disqualifying event; the 90-day rule applies, so plan exercises around completion.
Related questions
Do you lose your share options when you leave?
You lose the unvested ones — they normally lapse on your last day. Vested options depend on the scheme rules: they may lapse, stay exercisable for a short window such as 90 days, or be treated differently for good and bad leavers. Exit-only options usually cannot be exercised until a sale, so leavers often forfeit them. [More: What vesting schedule should employee options have?]
Is leaving employment a disqualifying event for EMI?
Yes. Ceasing to be an employee (or dropping below the working-time threshold) is a disqualifying event. To keep full EMI tax treatment, the option must be exercised within 90 days of the event — otherwise later growth after those 90 days can be taxed as income. [More: What is an EMI share option scheme?]
How long do I have to exercise vested options after leaving?
It depends on the scheme rules, but a common window is 90 days, chosen to match the EMI disqualifying-event rule. Exit-only schemes are different: there is nothing to exercise until a sale, so vested options either lapse on leaving or are kept solely for an exit, per the rules. [More: What vesting schedule should employee options have?]
What is the difference for good leavers and bad leavers?
Good leavers (for example, leaving through redundancy or ill health) typically keep some or all vested options; bad leavers (for example, dismissal for misconduct) often forfeit even vested options. The scheme rules define the categories and the consequences. [More: What are good leaver and bad leaver provisions?]
Can a leaver keep unvested options?
Almost never. Unvested options represent equity that has not yet been earned, so they lapse on leaving as standard. Boards occasionally exercise discretion to let some vest in special cases, but the default — and the expectation — is that unvested options are lost. [More: What happens to employee options when a startup is acquired?]
A departure turns your scheme rules into hard consequences overnight — vested options kept or forfeited, a 90-day EMI clock ticking, tax treatment won or lost. A SuLe solicitor can make sure your leaver terms and EMI mechanics line up so a good leaver is not caught out. Book a free call about your option scheme and get leaver provisions that work when someone actually leaves.
Keep reading: What vesting schedule should employee options have? · What are good leaver and bad leaver provisions? · What is a vesting cliff? · What is an EMI share option scheme? · What happens to employee options when a startup is acquired? · When must EMI option grants be notified to HMRC?
Primary sources: GOV.UK — Enterprise Management Incentives (EMIs)
