A company share option (CSOP) gives employees the legal right to buy shares in a given company in return for cash payment and not as a portion of an employee’s regular salary. The CSOP may be used to finance the acquisition of new company-owned equipment, property, plant, and labor, to provide payroll for a newly hired staff, and to provide additional short-term cash to meet operating expenses. The flexible terms of a CSOP give employees greater control over their investments.
Benefits of Company Share Option plans, by buying a company share option, employees protect themselves from the possibility of hostile takeovers and maintain their ownership stake in the enterprise. By offering cash payments instead of receiving future payments, a CSOP allows an employee to use his or her retained earnings to buy shares of a company. The plan requires no annual fees and offers unlimited rights. CSOPs can be used to finance debt or obtain equity (a combination of cash and enterprise security).
One advantage of a CSOP is that you only receive full market value for your shares each year. You will be taxed on the value of those shares, so only the amount of actual market value you receive is taxable. With a CSOP, you usually only pay a single percent of the total amount of your option exercise price each year, and that is usually less than what you would pay if you sold your shares on the open market. A CSOP is a good choice for a business that is stable and has a long history of success. If the corporation is in financial distress, an enterprise management incentive (EMI) may be granted to employees to purchase the designated shares for them, thereby helping the enterprise to weather the storm. An EMI can be worth several times the security value, depending on the financial crisis and market conditions.
Talk to Your Advisor
If you consider a company share option plan, it is a good idea to talk to your financial adviser first. Your adviser can give you expert advice about whether a plan would be right for your organization. They can also help you find a company that has the right to grant an offer. Many grant offerings are not available to the mass public. These companies have been selected by your financial adviser and are therefore less likely to be offering too many shares to the general public.