Share options settled by an individual shareholder
Produced in partnership with Will Cookson of Spiral Sky Limited
Share options settled by an individual shareholder

The following Share Incentives practice note produced in partnership with Will Cookson of Spiral Sky Limited provides comprehensive and up to date legal information covering:

  • Share options settled by an individual shareholder
  • Why an individual might want to offer their shares
  • Dilution
  • Process and documentation
  • Is shareholder approval required?
  • Establishing an ‘employees' share plan’
  • Share option’s terms
  • Other share option documents
  • Exercise price
  • Non-tax considerations around the individual shareholder’s shares
  • More...

Share options are an enforceable right for an employee to acquire shares at a given price, subject to meeting pre-determined conditions. The share option contract between the grantor and the employee will also stipulate who is to source those shares and satisfy the subsisting share option at the point the share option is exercised. The shares will typically come from either the company or a third party such as an individual shareholder, corporate shareholder or a trustee of an employee benefit trust (EBT).

This Practice Note considers the situation where an individual is the one who satisfies the share option and specifically examines:

  1. why an individual might want to offer their shares

  2. process and documentation

  3. considerations around the individual shareholder’s shares

  4. taxation implications

  5. accounting and reporting implications

  6. multiple individual shareholders, and

  7. gifting shares through a will

The individual shareholder will normally be selling their shares for the exercise price set in the share option contract. More often than not the exercise price is equal to the market value at the date of grant, so the shareholder is effectively losing their right to any future growth on those shares.

Why an individual might want to offer their shares

In most cases the reason an individual agrees to settle the share options is due to dilution (see below). There can be other reasons, for example family members passing on shares

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