How Ordinary Shares, Growth Shares and EMI Options Change Valuation

Founders often hear ordinary shares, growth shares and EMI options used in the same breath. They are not the same thing, and the difference matters more than most people expect.

Each route changes control, tax and valuation in a different way. Pick the wrong one, and you may give away more value than you meant to, or end up with a cap table that looks messy to investors and buyers.

What ordinary shares really mean for ownership and value

Ordinary shares are the basic building block of company ownership. They carry voting rights, a claim on future value, and, usually, the clearest route to upside if the business grows.

That simplicity is useful. It also has a price. When you issue ordinary shares, you are usually handing over present value, not a promise of future value.

How ordinary shares affect dilution from day one

If a founder owns 100 ordinary shares and gives 10 to a new hire, the founder’s holding falls straight away. They now own 90, and the new holder owns 10.

That is dilution in its plainest form. The shares are real ownership now, so the percentage shift is immediate. There is no waiting period and no hurdle to cross.

For a growing business, that can feel expensive. You are not only sharing future upside, you are also sharing what the company is worth today.

Why ordinary shares can make valuation feel higher

Ordinary shares are usually priced against the company’s current worth. If the business already has strong prospects, that price can be higher than founders expect.

This matters when you are issuing shares to staff, co-founders or early backers. If the shares are issued below market value, the discount can create tax issues. HMRC may treat part of that discount as income.

Ordinary shares are simple, but they hand over today’s value as well as tomorrow’s.

How growth shares ring-fence today’s value and reward future growth

Growth shares are a special share class built to capture value only above an agreed starting point. That starting point is usually called the hurdle value.

In plain English, they let the current owners keep the value already built into the company. The people receiving growth shares only share in what comes next.

That makes them useful where the goal is to reward performance, not hand over the cake that is already on the table.

The hurdle value and why it matters to the cap table

The hurdle is the line in the sand. If the company is worth £2m today, the growth shares may only benefit once value rises above £2m.

That changes the valuation story. The shares are not priced as if they own the full company value. They only attach to the increase beyond the hurdle.

The hurdle needs care. Set it too low, and you may give away too much value. Set it too high, and the shares may lose their commercial appeal. A weak valuation here causes problems later, especially if HMRC or investors question the basis.

When growth shares can be a better fit than ordinary shares

Growth shares often suit family businesses, founder-led companies and ambitious SMEs. They work well where the owners want to keep control but share upside with the people helping the business grow.

They can also feel fairer. If someone is joining after a lot of value has already been created, it makes more sense to reward future growth rather than grant them a slice of yesterday’s work.

For many private companies, that is the clean middle ground. It keeps the cap table focused and avoids handing over more than needed.

Where EMI options sit, and why they often change the valuation discussion

EMI options are different again. An option is not a share. It is the right to buy shares later, usually at a set price.

That delay matters. The person holding the option does not own equity on day one, so the valuation discussion starts with the option price, not immediate ownership value.

EMI, or Enterprise Management Incentives, is often the most tax-efficient route for qualifying UK companies. It also brings more certainty, because HMRC can usually agree the share valuation in advance.

Why EMI options usually start with an HMRC-backed valuation

With EMI, the company normally agrees a valuation with HMRC before granting the options. That agreed figure helps set the exercise price.

This is valuable because it gives both sides a clear starting point. Founders know what value HMRC accepts, and employees know what they will pay if they exercise later.

It also cuts down the risk of arguments down the line. For businesses new to share plans, that certainty is worth a lot.

How EMI options differ from giving shares now

Option holders do not own shares until they exercise. That means there is no immediate dilution in the same way as with ordinary shares or growth shares.

The value only matters when the option is exercised, and the shares are then worth more than the exercise price. That is why EMI often suits businesses that want to preserve cash and align rewards with growth.

It is a clean fit for scaling companies, as long as they qualify and the plan is set up properly.

The valuation impact of each route, side by side

Here is the short version.

Structure	What it is	How valuation works	What it means in practice
Ordinary shares	Real shares now	Priced at current company value	Immediate ownership and immediate dilution
Growth shares	Shares tied to future growth	Value starts above a hurdle	Protects existing value and rewards upside
EMI options	Right to buy shares later	HMRC-agreed share value sets exercise price	No ownership until exercise, often with stronger tax treatment

The headline is simple. Ordinary shares usually reflect full current value. Growth shares sit behind a hurdle. EMI options use an agreed valuation to set the buy-in price.

What founders need to watch when setting share prices

A low price can create tax risk. A high price can kill the incentive.

There are three things to get right:

• The starting value needs to be defendable.
• The upside split needs to make commercial sense.
• The paperwork needs to match the deal you think you are giving.

Get one of those wrong, and the structure can look neat on paper but cause trouble in a funding round or exit.

How the choice can affect investor and buyer confidence

Investors and acquirers read the cap table closely. They want to see who owns what, what has been promised to staff, and how much dilution is waiting in the wings.

Clean share arrangements help. So do valuations that are properly documented and hard to challenge.

If the structure looks vague, or the numbers feel inflated, due diligence gets slower and harder. That has a habit of affecting price too.

How to choose the right structure for a growing business

The right choice depends on what you are trying to do. If you want simple ownership, ordinary shares may be enough. If you want to reward future growth without handing over existing value, growth shares may suit better. If you want a tax-efficient staff incentive and your company qualifies, EMI options often make the most sense.

Think about stage, cash flow, investment plans and exit timing. A structure that works at seed stage may look clumsy once a funding round is close.

Talk to an ICAEW-regulated Corporate Finance Adviser today.

When ordinary shares are the simplest answer

Ordinary shares can be right for co-founders, simple ownership splits and businesses that do not need a fancy incentive plan. They are easy to explain and easy to hold.

That said, simplicity only helps if the tax and dilution trade-offs are acceptable.

When growth shares or EMI options are usually more strategic

Growth shares are often better when you want to protect value already built into the company. EMI options are often better when you want a tax-efficient way to reward staff, and the company qualifies.

If you are scaling, bringing in investment, or planning an exit, the structure should match the story you want the numbers to tell.

Conclusion

Ordinary shares give immediate ownership. Growth shares reward future upside above a hurdle. EMI options delay ownership until exercise and often bring the strongest valuation and tax advantages for qualifying UK companies.

The best choice depends on your goals, growth stage and exit plans. Get the valuation right early, and you avoid awkward surprises later, when the stakes are higher and the room for manoeuvre is smaller.