What is the difference between a share and a share option?

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Published on LexisPSL on 29/11/2019

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

  • What is the difference between a share and a share option?

A share gives the holder a direct and immediate shareholding in the company with all the rights attaching to that share. Conversely, a share option is an agreement between the holder of shares and/or the company and the option holder which gives the option holder the right (but not an obligation) to purchase shares at a specified price at a specified point of time (or on the occurrence of a specified event).

Unlike a share, share options:

  1. will not provide voting rights pre-exercise even though the underlying share under option may have such rights. This is attractive to existing shareholders as it means that they do not have to worry about minority shareholders up front

  2. do not result in immediate dilution to existing shareholders

  3. are usually not taxed on grant. Conversely, employees must usually pay market value for the direct acquisition of shares at the time of such acquisition, or suffer a tax charge on the market value at that time

  4. are subject to the terms of the share grant documentation and, in some cases, legislation whereas when shares are issued, t

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