Employee share option agreement
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- Guidance notes included
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About this agreement
This document will be bought by any company to set up a motivational option scheme for an employee working in any capacity.
It is assumed that the employee will achieve some goal or target to qualify. The option is triggered by the increase in the value of the company calculated as set out either in the agreement or in a schedule. The terms are for you to decide.
We have provided an example deal, but it is for you to enter details of your exact deal. That may be any arrangement you like.
We have provided for the optioner to pay for the option and also to pay for the shares on exercise of the option. Either or both provisions may be deleted or the sums increased or reduced.
Alternatives to this agreement
Net Lawman sells variations on this agreement for:
- the trigger being performance criteria;
- options for a third party: a consultant or contractor or marketer;
You can see these at Share option agreements.
This would also be a good time to put into place a new shareholders’ agreement whilst you are in charge of the shares. If you wait until the optioner is a new shareholder, you will have to take greater account of what he wants. Look at Shareholders' agreements.
The law in this agreement
This document is drawn under basic contract law: no special rules, no tax arrangements, no complications.
Approved Profit Sharing Schemes allow an employer to give an employee shares in the company up to a maximum value of €12,700 per year tax-free. Approved Profit Sharing Schemes are subject to certain conditions set out in legislation and administered by the Revenue Commissioners.
Providing the scheme meets the required conditions, an employee will pay no tax on shares up to a maximum value of €12,700 per year. The employer must hold the shares for a period of time (called the "retention period") and the employee must not dispose of the shares before three years. If an employee disposes of shares before this time, he or she is liable to pay income tax on whichever is the lower of the following:
- the market value of the shares when they were given to the employee; or
- the value of the shares at the time of sale.
Approved Share Options Scheme rules came into effect in 2001. Under these rules, if an employee purchases shares from a company at preferential price then he or she becomes liable for Capital Gains Tax of 20 cent in the euro if he or she sells the shares. The Capital Gains Tax is charged on the difference between the purchase price and the subsequent sale price of the shares.
Unapproved Share Option Schemes require the employee to pay tax on the difference between the market value of the shares and the purchase price of the shares at the time the employee exercises the right to buy them. If the employee subsequently sells the shares, he or she is also liable for Capital Gains Tax if the shares have increased in value from the time of purchase to the time of sale.
- Definitions and interpretation
- Optional reference to employment contract
- Option data
- Grant of option
- Conditions for exercise of option
- What happens if contract of employment is terminated before option is exercised
- Warranties by the company
- Draft notice by optioner to exercise the option
- Draft list of matters which may affect optioner’s decision
This document was written by a solicitor for Net Lawman. It complies with current Irish law.
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