Q&As

What are the potential consequences of an EMI option having been granted and the articles of association subsequently being changed to include a drag along right in respect of the shares under option?

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Published on LexisPSL on 13/04/2018

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • What are the potential consequences of an EMI option having been granted and the articles of association subsequently being changed to include a drag along right in respect of the shares under option?
  • Disqualifying event
  • Notification of restrictions

What are the potential consequences of an EMI option having been granted and the articles of association subsequently being changed to include a drag along right in respect of the shares under option?

There are two separate issues to consider in relation to this Q&A:

  1. is the change to the share capital of the company a ‘disqualifying event’? and

  2. do the new restrictions on the shares amount to a variation of the enterprise management incentives (EMI) share option agreement and do they have to be notified to the option holder?

Disqualifying event

A variation of the share capital of the company is a disqualifying event if it affects (or would but for some other event affect) the value of the shares to which the option relates and involves the creation, variation or removal of a right or restriction to which any shares in the company are subject, and whose effect is:

  1. that the requirements of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) are no longer met, or

  2. to increase the value of the shares to which the option relates and either the variation is not made for commercial reasons or the main purpose (or one of the main purposes) for making it is to increase the market value of those shares

Subject to a 90-day grace period, disqualifying events can result in

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