Drafting leaver provisions in share plans
Drafting leaver provisions in share plans

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

  • Drafting leaver provisions in share plans
  • Leaver provisions and different types of scheme
  • When is a participant treated as leaving?
  • Termination of employment or coming under notice
  • Different treatment for different types of leavers
  • Including some discretion as regards the treatment of leavers
  • Leaver requirements under statutory tax-advantaged plans
  • Restrictive covenants
  • Corporate governance best practice in relation to leavers
  • Dealing with performance conditions on leavers’ awards
  • more

Leaver provisions and different types of scheme

When drafting a set of share plan rules or option or award agreement, a company will wish to make clear what will happen to the relevant option award if the employee leaves employment. Any provision dealing with this is typically referred to as a 'leaver provision'.

With most types of share incentive arrangement, any leaver provisions will be set out in the governing plan rules and/or the individual award documentation. However, where the structure of the award involves the employee becoming a shareholder from the outset, such as a growth share arrangement, the leaver provisions may instead appear within the articles of association of the company, in order to deal specifically with any requirements that the shareholder must transfer their shares if they leave.

If the share award is being granted under a statutory tax-advantaged share scheme, the company will need to ensure that the leaver provisions in the scheme satisfy the legislative requirements which apply to that type of scheme (see Leaver requirements under statutory tax advantaged plans below and also Practice Note: Employee share schemes—dealing with leavers). Particularly if it is a listed company, applicable corporate governance best practice requirements on the treatment of leavers' share awards may also need to be adhered to (see Practice Note: Corporate governance best practice in