CSOP - Employer

Articles of Association

The Articles of Association must comply with the requirements of paragraph 19 Schedule 4 Income Tax (Earnings and Pensions) Act 2003.

The main requirements for the Articles of Association are as follows:

• The Articles of Association may provide that a transfer notice shall be given following cessation of employment. If such a provision is to apply to shares of the class used in the scheme it must comply with the requirements of paragraph 19 Schedule 4 Income Tax (Earnings and Pensions) Act 2003.
• The requirement to offer shares for sale must be imposed by the articles of association. Such arrangements cannot be imposed by means of a shareholder agreement or in scheme rules.
• The requirement to offer shares for sale must apply to all employees and all directors upon cessation for any reason and to all shares of the class used in the scheme held at the date of cessation.
• The requirement to offer shares for sale must be mandatory. It cannot be left to the discretion of any person or persons to decide whether shares are to be offered for sale.
• The transfer notice must take effect at the time the relevant individual ceases to be an employee or director of the company, and any company under the control of the company whose shares are used within the scheme.
• If a director or employee is given a right to acquire shares (for example, a share option) but does not exercise that right until after he has ceased to be an employee or director, then; he, or any other person (for example, personal representatives), must be required to offer his shares for sale immediately he acquires them.
• The requirement to give a transfer notice can only apply to shares held by the employee or director. The requirement cannot extend to persons to whom shares have been transferred (e.g. family members or family trusts) because these shares were not acquired "in pursuance of rights or interests obtained by such directors or employees..".
• The terms of sale must be the same as apply for a voluntary sale.
  
• Once shares have been offered for sale there must be no facility allowing an employee or director to withdraw the irrevocable transfer notice. A Total Transfer Condition or similar will not be acceptable. Where buyers are found for part of the shareholding that part must be sold.
• Articles commonly provide that a transfer need not go through the general pre-emption provisions if all of the shareholders so consent. Such a provision is acceptable if 100% consent is required. If 100% have so consented it effectively means that all other shareholders have indicated they do not wish to use their pre-emptive rights to acquire the shares being transferred, rendering the general pre-emption procedures unnecessary. Consent of less than 100% is unacceptable. It is not acceptable for such a 100% consent provision to apply to employee pre-emption.