Share option agreement

About this document

This agreement grants the right to buy shares in a company subject to conditions being met.

The person who is granted the option may be associated in any capacity and in any business. Most likely, he or she will be an advisor or contracted worker whose actions will directly increase the share price. For example, he or she may work to secure an initial public offering or sell the business above a certain price. But the holder could also be a corporate body, such as another company.

The exact conditions on which the option is triggered are specified by you. They could include the achievement of a public share price, or an accountant’s valuation on the terms on which you instruct him or her.

We have provided for the holder to buy the rights and also to pay for the shares on the exercise. Either or both provisions may be deleted or the amounts increased or reduced.

This agreement may be bought and provided by either the company management or the person who will hold the option.

We leave the defintion of the event that triggers the possibility for the exercise of the option to your commercial judgement. It could be many things, from an increase in net current assets or net profit, to an increase in shareholders' equity. If it might not be clear to the holder when the event happens that qualifies the option to be exercised, you may need suggestions from your accountant.

Alternatives documents

We sell other versions of this agreement where the holder is an employee, and the reason to exercise is either the attainment of a performance goal, or like this contract, a particular share price or business valuation.

The grant of option rights is also a good time to review or put in place a shareholders’ agreement, while you have power to do so easily. After exercise, you may have to take into greater account what the new shareholder wants.

The law in relating to options

This document is drawn under basic contract law. There is no special or complicated law to have to consider.

The government also permits an Enterprise Management Scheme, which provides that small share options, to a max value of £120,000 at time of grant, may 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 restrictions and conditions. 

Contents

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