ETASSUM40120 - Schedule 4 Company Share Option Plan (CSOP): Grant of share options - legal considerations

Paragraph 1 and 2(1) Schedule 4 provides for share options to be granted to employees and directors under a Schedule 4 CSOP scheme. Section 521 defines a “share option” as “a right to acquire shares in a company”. The word “right” indicates that there must be some sort of contractual legal entitlement.

For an employee or director to have a legally enforceable “right” to acquire shares under English law:

• the option must have been granted under the company seal or deed, or
• consideration must have been given for the grant of the option.

It is acceptable for options to be granted by Deed, without being executed under the seal of the company. A document executed by a company will be a Deed if it is clear from the document that it is intended to be a Deed.

Grant under the company seal is not required under Scottish law. In US schemes a “stock-option agreement” (which forms the contract) is usual - this does not have to be given under seal or in the form of a deed.