Employee share option agreement
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- Guidance notes included
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About this agreement
This document is likely to be used by an employer to motivate an employee working in any capacity. The business of the company and the role of the employee are not important to the effect of the agreement.
The same document could be used for many employees (such as each director or senior manager), with terms varied for each.
It is assumed that the employee will achieve a personal goal, or contribute to a corporate one, that increases the value of the company significantly. When a target is met, the option can be exercised.
We have provided for the employee to pay the company for the option and also to pay for the shares on exercise. Either or both provisions may be deleted or the sums increased or reduced.
The actual result or event that will trigger the exercise of the option is for your commercial judgement. If there is no decisive event that proves the increase in value, you may need to ask your accountant for a suggestion, with reference to balance sheet value or profit as shown in the annual accounts.
You might also consider reviewing or putting into place a new shareholders' agreement before the option is exercised and while you have greater voting rights to approve the agreement. If you wait until the option holder is a shareholder, you may have to take greater account of his or her wishes.
The law in this agreement
This document is drawn under basic contract law so there are no special rules to have to consider.
The government also permits an Enterprise Management Iniative Scheme that allows small share options, to a maximum value of £120,000 at time of the grant, to be made to a qualifying employee by a qualifying employer. There is no charge to tax at or after exercise but capital gains tax still applies on ultimate disposal. There are other restrictions and conditions.
- Definitions and interpretation
- Optional reference to the employment contract
- Option data
- Conditions for exercise
- What happens if the contract of employment is terminated before exercise
- Warranties by the company
- Draft exercise notice
- Draft list of matters that may affect the holder's decision
This document was written by a solicitor for Net Lawman. It complies with current English law.
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