How should an option pool be structured when raising capital—should new shares be created, or should the pool come from founder shares?

When setting up an option pool, **new shares should be created** to dilute the whole company pro-rata, rather than coming from founder shares alone. This is market standard practice.

**Key principles:** - New shares dilute everyone proportionally—all shareholders (founders, existing investors, employees) take the dilution, not just founders - This applies unless your Shareholder Agreement or Articles of Association explicitly contain non-dilution clauses, which are rare outside of specific anti-dilution protections in investment rounds - Option pools are typically **excluded from anti-dilution top-ups**, meaning everyone dilutes pro-rata when the pool is created - If your Articles or legal docs specify that one person takes the full hit, that would be non-standard and should be reviewed

**Tax-efficient route in the UK:** - Consider setting up an **EMI (Enterprise Management Incentives) share option scheme**, which offers tax efficiency for employees. See: https://www.gov.uk/tax-employee-share-schemes/company-share-option-plan

**What members did:** - Several members set up their option pools to dilute everyone proportionally when established - One member noted that an investor/board member pushing for founder-only dilution was incorrect—this runs counter to 10 years of VC market practice

**Caveat:** If your SHA or investment docs include specific non-dilution or anti-dilution clauses, review them carefully—but standard practice is pro-rata dilution for option pool creation.