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What is an Option Agreement?
An Option Agreement is a contract by which a company gives a buyer an option to buy new shares in future.
An Option Agreement specifies the type and amount of shares to be issued to the buyer, the exercise period, the exercise price, and any condition to be fulfilled before it can be exercised.
Under an Option Agreement, shares are issued to the purchaser when he exercises the option and pays the exercise price. This is also known as “forward vesting”, which is contrary to “reverse vesting” under a Share Vesting Agreement.
What is meant by an “option”?
Key terms explained
How to create a share option?
Key points included
- Purchase price of the option;
- Number and type of new shares to be issued upon exercise of the option;
- Period during which the option can be exercised;
- Whether there is any condition to be fulfilled before the option can be exercised, and if so what the conditions will be;
- Purchase price for each share when the option is exercised, which is called the “exercise price”; and
- Within how long after the exercise of option completion will take place.