Share option agreements

These agreements allow employees, including directors, or a third party, such as a sales agent or distributor, to be rewarded in line with the increased performance of the company.

The agreements cover options triggered by either an increase in the value of the company or share price, or the attainment of some specified targets.


Share option agreement: non-employee

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Use this agreement where your counter party is not an employee. It could be any third party.

The third party may be an individual such as an advisor or contractor, or even another company.

The option crystalises when the company share valuation reaches a certain level.

It is assumed that the option holder will be instrumental in increasing the value of the shares in the company. This could be measured at an initial public offering, or when another person buys shares from an existing shareholder, or at any other date on which an accountant values the shares on terms on which you instruct him.

Share option agreement: non-employee; performance based

4 Reviews

Use this agreement to grant a share option in your company to a third party.

The third party may be an individual, or a corporate body.

The option is triggered on events specified by you in the agreement, such as when a performance goal or target is achieved.

Your counter party could be associated with the company in any capacity, except as an employee. For example: he could be an Internet marketing consultant, or a contracted operator of your leisure facilities.

Employee share option agreement

1 Review

Use this agreement where your counter party is an employee. The exercising right is based on an increased valuation of the shares.

The document allows you to set the valuation method you require, for example as a proportion of a multiple of adjusted EBITDA at the financial year end, or the price at which shares are sold at the next investment round.

Employee share option agreement: performance based

1 Review

Use this agreement where you wish to grant options to an employee in your company if a personal or corporate target is achieved.

He or she may be employed in any capacity, including as a director.

The triggering conditions can be set exactly as you require.

CallTalk to us about giving share options

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Easy to use agreements

These four agreements are very similar in structure and content. The only differences relate to:

  • whether your counter party is an employee or a third party
  • whether the exercise of the option is to be triggered by increased personal performance or by a higher valuation

What event triggers the option in your case is obviously very important. Since that could be unique for your business, we have used “performance” and “higher share price” as the most likely and allow you to specify in more detail, if required, the exact conditions.

The documents are structured so that the trigger can be set down in a schedule. You do not have to edit the main paragraphs in the document.

Once the document is signed and dated, it is legally binding. Just because the details are in the schedule rather than the main document does not mean they can be changed without agreement by all parties.

We have provided for your counter party to pay for the option and also to pay for the shares on exercising it. Either or both provisions may be deleted or the sums increased or reduced.

Also consider a new shareholders’ agreement

This would also be a good time to put into place a new shareholders’ agreement whilst you are 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 relating to these agreements

This document is drawn under basic contract law. There are no special rules, tax arrangements, or other legal complications that need to be considered with an agreement of this type.

Share options under the government scheme

The government also permits an “Enterprise Management Scheme” that provides for a qualifying employer to offer a qualifying employee small share options, to a maximum value of £120,000 at the time of the grant.

There is no charge to tax either at or after exercise of the options, but CGT still applies on the ultimate disposal. There are restrictions and conditions. Net Lawman sells a set of documents that cover all aspects of setting up an Enterprise Management Incentive (EMI) Scheme.

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