Simplifying CSOP – a lawyer’s plea!
Contrary to popular belief, us share plan lawyers don’t really like making things complicated just for the sake of it.
So over the past couple of years, we’ve been delighted that the powers that be have taken the time to consider how tax-advantaged employee share schemes might be improved and/or simplified to help towards the holy grail of economic growth – at the moment there’s a consultation running on Share Incentive Plans and Sharesave, which we’re looking forward to contributing to.
One of the outcomes that RM2 particularly welcomed was the removal of the requirement to summarise the rights and restrictions attaching to the shares being placed under EMI option in the participant’s EMI option agreement.
I myself have spent many a happy hour trying to decipher articles of association from the last century with a view to summarising them in a section of a document which I’m fairly confident will not be read by a considerable number of the relevant participants. Logically, the participant’s focus will be on other – frankly, more important – parts of the agreement such as the number of shares, the option exercise price and the vesting schedule – and who can blame them for that!
In relation to the CSOP, we’ve also been very happy that the government has increased the limit for individuals holding CSOP options from £30,000 to £60,000, as well as relaxing the requirements around the class of share that a CSOP option can be granted over. Those changes are already causing a greater number of CSOP option plans to be considered and implemented, which is very positive news. However, unlike EMI, CSOP options still have to include a summary of the shares’ rights and restrictions set out in the option agreement.
However, last week I was again hunched over my desk considering some articles of association from circa 1998 and wondering how on earth they could be summarised simply (and therefore cost effectively) for a CSOP option agreement. (You might argue that a nice up to date set of articles of association might be appropriate, but that’s an extra cost that is unlikely to be welcome in the current business climate.)
So – a lawyer begs: can we not “join the dots” for the CSOP plan and extend the removal of the requirement to detail the rights and restrictions of the shares being placed under option to CSOP (as well as EMI). There does not seem any useful reason for the differing rules in the two plans, and it is not likely to be a change that would require a lot of governmental time to implement (given that the precedent is already there from the equivalent EMI amendment).
Meantime, for companies that can’t use EMI for whatever reason, CSOP continues to be the next best share option plan available, even if it does require extra words in the option agreements. Contact us on email@example.com if you want to find out more.