Company Share Option Plan 

A Company Share Option Plan (CSOP) provides employees with the option to acquire shares in the company that they work for. Unlike EMIs, CSOPs are not limited to ‘small’ companies.

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Company Share Option Plan (CSOP)

CSOPs are approved by HMRC, and therefore attract favourable tax treatment for both the company and the employee provided certain qualifying conditions are satisfied. The qualifying conditions relate to both the company, and the proposed option holder.

CSOPs can be subject to performance conditions, which means that employees will be motivated to ensure the conditions are achieved and their options are therefore capable of exercise. The company also has discretion in relation to which employees participate in the scheme.

Herrington Carmichael have assisted a UK leading sustainable forestry and harvesting company in implementing a CSOP. 

This included the implementation of a new company structure, whereby employees were offered a share of the company to benefit from past and future growth, and responsibility for company performance. The scheme involved offering employees the option to a buy a percentage of the company’s shares, including the release of options in multiple tranches, to allow involvement of future employees in the scheme.

The CSOP allowed employees to own shares in the company, and therefore receive dividends, or sell their shares and realise the increase in value since acquisition.

The scheme successfully assisted the company in achieving profit targets, whilst also managing cash flow.


What are the qualifying conditions a company must meet to use a CSOP?

CSOPs are commonly implemented by UK listed companies, US companies extending their plans into the UK and larger UK private companies.

To qualify to use a CSOP, a company must either be listed on a recognised stock exchange or be independent and, therefore, not controlled by another company.

There are also conditions on the share subject to the option offered under the CSOP. These are that the shares must be fully paid up and non-redeemable, forming part of the company’s ordinary share capital.

What are the advantages of a CSOP?

For companies, CSOPs offer great flexibility to provide for exercise on a particular “Exit Event”, or to impose exit conditions. For example, CSOPS will often not be exercisable for three years from the grant or for 6 months after a participating employee becomes a good leaver.

For employees, they will not pay income tax upon exercise, provided they meet the exercise conditions. Further, employees may exercise their option even after departure.

Clearly, this provides the balance of a strong tax incentive for employees whilst allowing the company to retain a high level of control over the employee’s exit options.

  • Property e.g. leases or sale of property
  • Employment e.g. full-time, part-time, fixed term, internships or freelancer contracts
  • Immigration related contracts
  • Corporate contracts e.g. shareholder agreements, business purchase contracts, articles of association, share buy-back agreements, share scheme documents
  • Pension related contracts
  • Litigation documents or contracts e.g. letters of claim or court documents
  • Insurance policies or associated documents
  • Banking and finance e.g. bonding, loan, deposit or factoring contracts
  • Franchise contracts

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