We want to make new share option grants but our employees are all working from home. Can our share option agreements be executed electronically?

We want to make new share option grants but our employees are all working from home. Can our share option agreements be executed electronically?

The position on this will largely depend upon whether the relevant share option agreements are drafted to be deeds or to be bilateral contracts with consideration.

In practice, share options are most often granted by deed in order to make sure that a validly binding contract is made. However, if a deed isn’t used then all the other requirements must be met in order for a binding contract to be made. This includes a need for consideration to paid by the prospective option holder to the grantor of the option in order for the share option to be granted to them. Therefore, typically, if a share option is not being granted by means of a deed then the share option terms will require the employee to make a nominal payment (such as £1) to the company in order for the company to grant the option to them.

Bilateral contracts with consideration can be executed electronically. Where this is intended, it is recommended that the contract includes a clause which specifically confirms that the electronic signature is intended to authenticate the document (for an example provision, see: Counterparts clause).

However, the question of whether deeds can be executed electronically is less straightforward, as specific formalities apply to the execution of deeds—including that the deed must be signed in the presence of a witness who attests the signature. For this reason, it is not recommended to execute a deed electronically. For further details, see Q&A: My company needs to enter into a document as a deed but everyone is working from home. Is it possible to execute a deed by virtual means? and Practice Note: Electronic signatures.

Assuming that the relevant company already has share option grant documents which it is planning to use for the proposed new grants, these should be checked to see whether they are structured to be deeds or bilateral contracts with consideration. If the agreements are structured to be deeds, it may nevertheless be possible to adapt them to be bilateral contracts with consideration instead. However, where this is proposed, the following factors should be taken into consideration:

• are there governing plan rules which specify whether the grant is made by deed or bilateral agreement? If the option is granted under the terms of governing plan rules, these may include a requirement for the option to be granted by means of a deed, and/or which prevents consideration from being payable for the grant of the option

• does the option agreement include a power of attorney? If the option agreement includes a power of attorney given by the option holder then the option agreement must be executed as a deed

• what type of option is being granted? It should be noted that different requirements can apply depending upon the type of share option that is being granted. For example:

◦ in relation to unapproved share option grants, there is no specific requirement as regards whether the share option grants are made by means of a deed or by means of a contract with consideration

◦ similarly, in relation to company share option plan (CSOP) options and save as you earn (SAYE) scheme share options, there are no particular requirements as regards the approach taken, and HMRC has confirmed that the grants can either be by deed or by consideration being given at the point of grant

◦ however, more specific statutory requirements apply in relation to the structure of an enterprise management incentives (EMI) share option agreement and the manner and timing for entering into this. In particular, the agreement must be bilateral, between the grantor and the employee—and therefore cannot take the form of a unilateral deed by the company, for example. Nevertheless, HMRC guidance confirms that an EMI option agreement can be executed electronically, although provisions must be made to ensure employees are able to retain copies of their electronic agreements and acceptance, and the agreement must be retained by the company so that it can be inspected by HMRC. For further details on requirements in relation to EMI option agreements, see Practice Note: EMI—requirements for options.

Where any adaptation to an option agreement is needed, specialist advice is recommended.

For more information on electronic signatures generally, see Practice Note: Electronic signatures.

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