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What is a Share Option Plan?
A Share Option Plan, also known as an ESOP (Employee Share Option Plan), is a plan that sets out the rules under which share options of a company are given to its employees.
A Share Option Plan sets out the basic rules on how the options work, e.g. how to exercise an option, circumstances under which an option will lapse, what happens when the option holder leaves employment, or when a change in control occurs.
Under a Share Option Plan, 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.
After the company has adopted a Share Option Plan, share options are given by way of issuing an Option Certificate.
Key points included
- Overall grant limit;
- Individual grant limit (if applicable);
- Whether partial exercise of share option is allowed and if so, minimum number of shares to be purchased; and
- Whether share options granted will be exercisable in certain circumstances e.g. redundancy or retirement of the option holder.