Share Option Plan

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What is it?

If you want to reward your employees with shares via an Option to Purchase Shares in your company, then you first need a Share Option Plan.

An Option to Purchase Shares is an offer from a company to a certain individual with an option to purchase from the company a predetermined number of shares in that company at a predetermined price. This means they effectively buy the shares at a discount, which makes this offer akin to a bonus scheme.

If you decide to set up such a scheme, you need to set out the terms and conditions in a Share Option Plan (often referred to as an ESOP, Share Option Scheme, or Stock Option Plan). This determines how the directors decide if employees should qualify to receive the option, when they can "exercise" the option, and what happens if they leave their employment.

Why do you need it?

It can be difficult to recruit and retain great staff, but a company can reward and incentivise employees by giving share options. These not only offer a monetary reward but also directly link the success of the company and the financial gain for the employee.

You need a Share Option Plan to clearly set out how and when the board will authorise the granting of options.

Key clauses to watch for:

When drafting a Share Option Plan, it is important to focus on a number of key clauses, in particular:

  • Limits to how many options can be granted overall;
  • Limits to how many options can be granted to each category of employee;
  • Partial exercise available; Conditions for exercise of the share option;
  • What happens if there is a takeover; and
  • Date of the Share Option Plan.

Share Option Plan Document

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