Share options

An employee share option is a right to acquire shares in the company have the employee works for, or sometimes its parent. The option usually has a fixed exercise price and a defined period during which it can be exercised.

The fixed price can be anything from zero to the current market value or more. Typically, in order to encourage the retention of staff, the minimum option period will be three years or more.

The intention is to give employees a chance to become involved and interested financially in the success of the company or group they work for and feel more aligned with the shareholders of the company.

If the value of the shares has not exceeded the exercise price when the option becomes exercisable, the employee could defer taking up the offer and wait in the hope that the value increases to give them a gain, depending upon the time limit for the exercise of the option.

See Example 1.

Tax efficiency

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