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In any salary packaging, employers may offer their employees the option to participate in share option agreements. These agreements are option part of a scheme to align employee’s interests to that of the company.

Share Options Agreements can be referred to as Employee Share Scheme (ESS) or an Employee Share Option Plan (ESOP), is a contribution plan that remunerates employees by providing them with securities or an option to acquire securities and create a beneficial interest in the company.

An ESS can generally be used to entice, retain and reward employees where offering large salaries is not a viable option for a company.  It can also provide as an incentive for employees to improve their performance as the prospect of having a beneficial interest may encourage them to commit to the growth of the company in order to increase their own wealth down the track.

There are often taxation implications depending on the type of ESS.  Under tax law, granting an option is a Capital Gains Tax (CGT) event that occurs when the option is granted.  However, in an ESS, the share options will generally be provided to an employee at a discount or no cost.

An option granted by a company in relation to its unissued shares is a chose in action which allows a person to subscribe for a specified number of shares on specified terms on a future date or within a specified period. Depending upon its terms, an option may be exercisable by its grantor or, if assignable, by its holder from time to time. The true legal nature of an option has been a matter of controversy.  An option agreement may take the form of:

(1) a contract binding the grantor company to issue shares upon fulfilment of the option exercise conditions; or

(2) a contract binding the company not to revoke its offer to issue shares on the terms stated in the agreement.

It is normally appropriate to regard a share option agreement as a conditional allotment agreement.

The holder of an option to purchase existing property has an equitable interest in that property. However, the holder of an option to acquire unissued shares can have no such interest as unissued shares are not items of property.

If you require assistance in relation to Share Options Agreement, you may wish to contact our firm and make an appointment to see one of our solicitors. Please contact by telephone on (02) 9233 4048 or send an email to info@navado.com.au.

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