Ask the Collective

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.