ETASSUM54320 - Enterprise Management Incentives (EMI): Requirements relating to options: 'When and How' an option may be exercised
Paragraph 37, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)
Paragraph 37(2)(e) Schedule 5, ITEPA provides that an EMI option must state when and how an option may be exercised.
When an option may be exercised must be included in EMI option documentation from the outset. An EMI agreement which only states that an option may be exercised at the discretion of the company does not state when an option may be exercised, merely that this will be determined at some point in the future.
For example, an EMI option which allows the board unlimited discretion to choose, after grant, the circumstances under which it permits exercise, does not provide option holders with a right of exercise.
‘When’ refers to the occurrence of a specified event or point in time, independent of the satisfaction of any performance conditions which affect the entitlement of the EMI option holder.
It is possible for there to be multiple occasions of ‘when’ an option may be exercised, so that the occurrence of different specified events or points in time may cause the options to become exercisable.
‘How’ an option may be exercised will be a description of the relevant steps which must be taken in order for exercise to take place.