Share option agreement: non-employee; performance based

Use this agreement to grant an option to buy company shares to someone who is not an employee. The conditions to trigger the option can be specified by you.

Suitable for use in: England & Wales and Scotland
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About this document

This agreement grants an option to buy shares in a company to a contractor or business advisor. The third party could be involved with the company in any way.

To be eligible to trigger the option, the holder have to achieve a target (such as a sales goal). You can decide what criteria can be met and set them down as a schedule to this agreement.

We have provided for the holder to pay 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 holder should not be an employee. If he or she is, use this alternative agreement instead.

Examples of use

A contractor providing marketing services may be granted shares if he or she manages to increase revenues by a certain amount as a result of a certain project.

A hotel chain looking to list on a stock exchange may grant options to the firm of accountants advising them if the event occurs.

Alternative documents

We also sell variations on this agreement for the trigger being a higher share price or valuation, and not performance criteria.

When you grant options, it is a good time to put into place a new shareholders’ agreement while you remain in charge of the shares. If you wait until the option holder is a new shareholder, you will have to take greater account of what he wants.

The law in this agreement

This document is drawn under basic contract law.

The government also permits an Enterprise Management Incentive Scheme that allows qualifying employers to grant small share options, to a maximum value of £120k at the time of the grant, to qualifying employees.

There is no charge to tax at or after exercise but capital gains tax still applies on ultimate disposal. There are additional restrictions and conditions.

Net Lawman sells a pack of documents to cover all aspects of starting an EMI scheme.

Contents

  • Definitions and interpretation
  • Optional reference to main contract for work
  • Option data
  • Grant of option
  • Conditions for exercise
  • What happens if main contract is terminated before option is exercised
  • Warranties by the company
  • Draft notice by option holder for exercise
  • Draft list of matters that may affect the holder's decision
Draftsman

This document was written by a solicitor for Net Lawman. It complies with current English law.

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