CSOP—requirements for the options: flotations

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • CSOP—requirements for the options: flotations
  • Granting company share options plans—issues relating to flotations
  • General valuation issues
  • CSOP scheme rules which define the option price as the offer price
  • Timing issues
  • Other issues
  • Exercise of CSOP options—issues relating to flotations

CSOP—requirements for the options: flotations

As a flotation often reaps a higher valuation for the business than under a secondary buyout or trade sale, a flotation of the right business in the right market conditions is generally accepted as the method by which investors can make the highest return on their investment.

A company proposing to seek a listing for its shares often wishes to grant tax-advantaged options at, or immediately before, the time the shares are listed. In addition, it is common for a flotation to be a trigger event for the exercise of company share option plan (CSOP) options. Flotations can cause many issues for a company wishing to grant or exercise options immediately prior to the listing. This note examines the common practical issues including in relation to:

  1. granting CSOP options—valuation issues

  2. granting CSOP issues—timing issues, and

  3. exercising CSOP options

Granting company share options plans—issues relating to flotations

General valuation issues

CSOP legislation dictates that the exercise price of the options must be:

  1. stated at the time of grant, and

  2. not manifestly less than the market value (ignoring any restrictions) of shares of the same class at that time, or at such earlier time determined in accordance with HMRC guidance

In the event of a proposed flotation, companies will normally wish to set the exercise price of a CSOP option at the price at which shares are

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