An introduction to share options

AN INTRODUCTION TO SHARE OPTIONS

Share options are an attractive way for companies to share some of the fruits of equity ownership with key employees or members of the management team and can be a highly effective way of rewarding and retaining them.

What are share options?

In summary, a share option gives the holder a right to receive a certain amount of shares in the company. The right is usually exercised on the satisfaction of certain conditions or milestones (e.g., financial targets) or on a sale of the company. It is important to note that, with share options, the holder of the option doesn’t own any of the shares until the option is exercised. So having an option doesn’t entitle the holder to any voting or dividend rights, as would be the case if they were a shareholder (i.e., on exercise of the option).

Tax-advantaged options

There are four types of share options which can offer special tax advantages for companies and employees:

• Enterprise Management Incentive (EMI)
• Company Share Option Plan (CSOP)
• Save as you Earn (SAYE)
• Share Incentive Plan (SIP)

The most common share option scheme used by companies is the EMI scheme. EMI options are very flexible and tax efficient and can be an attractive option for many companies.

Ultimately the appropriate type of share option scheme for a company will depend on the turnover, number of employees and specific intentions for wanting to implement such a scheme.

Non-tax advantaged options

You can still grant share options even if none of the tax-advantaged options are available or desirable. These types of options are not approved by HMRC, but this doesn’t mean they cannot be used or offer no value to companies.

How Birdi & Co can help with share options

If you are an employer, we can review and advise on your proposals to implement a share option scheme. Once you are happy with your chosen option scheme, we will prepare and implement the share option documentation for you. If you are an employee, we can advise you on share option proposals that you have been offered.

For more information, please call us on 020 4571 8634 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

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