(3) trust as a result only of the individual’s having an interest in shares or
obligations of the trust.
(4) Chapter 11 of Part 7 of this Act (which deals with the attribution of interests
in companies to beneficiaries of employee benefit trusts) applies for the
purposes of sub-paragraph (2).
(5) In this paragraph “employee benefit trust” has the same meaning as in that
Chapter (see sections 550 and 551).
Meaning of “associate”: trustees of discretionary trust
14 (1) This paragraph applies for the purposes of paragraph 12(1)(c) (meaning of
“associate”: trustees of settlement) where—
(a) the individual (“the beneficiary”) is one of the objects of a
(b) the property subject to the trust has at any time consisted of, or
included, shares or obligations of the company mentioned in
(c) the beneficiary has ceased to be eligible to benefit under the trust as
a result of—
(i) an irrevocable disclaimer or release executed by the
(ii) the irrevocable exercise by the trustees of a power to exclude
the beneficiary from the objects of the trust,
(d) immediately after the beneficiary ceased to be so eligible, no
associate of the beneficiary was interested in the shares or
obligations of the company that were subject to the trust, and
(e) during the period of 12 months ending with the date on which the
beneficiary ceased to be so eligible, neither the beneficiary nor any
associate of the beneficiary received any benefit under the trust.
(2) The beneficiary is not, as a result only of the matters referred to in sub-
paragraph (1)(a) and (b), to be regarded as having been interested in the
shares or obligations of the company at any time during that period of 12
(3) In sub-paragraph (1) “associate” has the meaning given by paragraph 12(1)
but with the omission of paragraph (c).
Shares to which schemes can apply
Requirements relating to shares that may be subject to share options: introduction
15 (1) A CSOP scheme must meet the requirements of—
paragraph 16 (shares must be ordinary shares of certain companies),
paragraph 17 (requirements as to listing),
paragraph 18 (shares must be fully paid up and not redeemable),
paragraph 19 (only certain kinds of restrictions allowed), and
paragraph 20 (requirements as to other shareholdings).
(2) In this Part “eligible shares” means shares which may be acquired by the
exercise of share options under the scheme.
Shares must be ordinary shares of certain companies
16 Eligible shares must form part of the ordinary share capital of—
(a) the scheme organiser,
(b) a company which has control of the scheme organiser, or
(c) a company which either is, or has control of, a company which is a
member of a consortium owning either the scheme organiser or a
company having control of the scheme organiser.
Requirements as to listing
17 (1) Eligible shares must be —
(a) shares of a class listed on a recognised stock exchange,
(b) shares in a company which is not under the control of another
(c) shares in a company which is under the control of a listed company.
(2) A “listed company” is a company whose shares are listed on a recognised
stock exchange, other than—
(a) a close company, or
(b) a company that would be a close company if resident in the United
Shares must be fully paid up and not redeemable
18 Eligible shares must be—
(a) fully paid up, and
(b) not redeemable.
Only certain kinds of restriction allowed
19 (1) Eligible shares must not be subject to any restrictions (see sub-paragraph (4))
(a) those attaching to all shares of the same class, or
(b) those permitted by sub-paragraph (2).
(2) If the conditions of sub-paragraph (3) are met, eligible shares may be subject
to a restriction imposed by the company’s articles of association—
(a) requiring all shares held by directors or employees—
(i) of the company, or
(ii) of any other company of which it has control,
to be disposed of, or offered for sale, on ceasing to be so held, and
(b) requiring all shares acquired, as a result of rights or interests
obtained by such directors or employees, by persons who—
(i) are not such directors or employees, or
(ii) have ceased to be such directors or employees,
to be disposed of, or offered for sale, when they are acquired.
(3) The conditions of this sub-paragraph are—
(a) that a disposal required by the restriction will be by way of sale for a
consideration in money on terms specified in the articles of
(b) that under general conditions contained in the articles of association
anyone disposing of shares of the same class (whether or not held or
acquired as mentioned in sub-paragraph (2)) may be required to sell
them on terms which are the same as those mentioned in paragraph
(4) For the purposes of this paragraph shares are subject to a restriction if there
is any contract, agreement, arrangement or condition—
(a) by which a person’s freedom to dispose of the shares or of any
interest in them or of the proceeds of their sale, or to exercise any
right conferred by them, is restricted, or
(b) by which such a disposal or exercise may result in any disadvantage
to the person or to a person connected with the person.
This is subject to sub-paragraphs (5) to (7).
(5) Sub-paragraph (4) does not extend to so much of any contract, agreement,
arrangement or condition as contains provisions similar in purpose and
effect to any of the provisions of the Model Code as (for the time being) set
out in the listing rules issued by the competent authority for listing in the
United Kingdom under section 74(4) of the Financial Services and Markets
Act 2000 (c. 8).
(6) Sub-paragraph (4) also does not apply to any terms of a loan making
provision about how it is to be repaid or the security to be given for it.
(7) Any discretion of the directors under the articles of association of the
company to refuse to accept the transfer of shares is to be disregarded for the
purposes of this paragraph if the directors—
(a) have undertaken to the Inland Revenue not to exercise it in such a
way as to discriminate against persons participating in the scheme;
(b) have notified all those who are eligible to do so of the existence of the
(8) In this paragraph “articles of association” includes, in the case of a company
incorporated under the law of a country outside the United Kingdom, any
equivalent document relating to the company.
Requirements as to other shareholdings
20 (1) The majority of the issued shares of the same class as the eligible shares must
(a) employee-control shares, or
(b) open market shares,
unless the eligible shares are shares in a company whose ordinary share
capital consists of shares of one class only.
(2) Shares in a company are “employee-control shares” if—
(a) the persons holding the shares are, by virtue of their holding,
together able to control the company, and
(b) those persons are or have been employees or directors of the
company or of another company which is under the control of the
(3) Shares in a company are “open market shares” if the persons holding the
shares are not —
(a) persons who acquired their shares as a result of a right conferred on
them or an opportunity afforded to them as a director or employee
of the scheme organiser or any other company, and not as a result of
an offer to the public, or
(b) trustees holding shares on behalf of persons who acquired their
beneficial interests in the shares as mentioned in paragraph (a), or
(c) in the case of shares which—
(i) are not of a class listed on a recognised stock exchange, and
(ii) are in a company which is under the control of a listed
company (as defined by paragraph 17(2)),
companies which have control of the company whose shares are in
question or of which that company is an associated company.
Requirements etc. relating to share options
Requirements etc. relating to share options: introduction
21 (1) A CSOP scheme must meet the requirements of—
paragraph 22 (requirements as to price for acquisition of shares), and
paragraph 23 (share options may not be transferred).
(2) A CSOP scheme may make any provision authorised by—
paragraph 24 (exercise of options: ceasing to be director or employee),
paragraph 25 (exercise of options: death).
Requirements as to price for acquisition of shares
22 (1) The price at which shares may be acquired by the exercise of a share option
granted under the scheme—
(a) must be stated at the time when the option is granted, and
(b) must not be manifestly less than the market value of shares of the
same class at that time.
This is subject to sub-paragraphs (2) and (3).
(2) The Inland Revenue and the scheme organiser may agree in writing that
sub-paragraph (1)(b) is to apply as if the reference to the time when the
option is granted were to an earlier time or times stated in the agreement.
(3) The scheme may provide for one or more of the following—
(a) the price at which shares may be acquired by the exercise of a share
option granted under the scheme,
(b) the number of shares which may be so acquired, or
(c) the description of shares which may be so acquired,
to be varied so far as necessary to take account of a variation in the share
capital of which the shares form part.
(4) But the scheme must provide that no such variation is to be made without
the prior approval of the Inland Revenue.
Share options must not be transferable
23 (1) The scheme must ensure that share options granted to a participant are not
capable of being transferred by the participant.
(2) Paragraph 25 provides for the exercise of the options where the participant
Exercise of options: ceasing to be director or employee
24 (1) The scheme may provide that an individual may exercise share options
under it after ceasing to be a full-time director or qualifying employee.
(2) “Qualifying employee” has the same meaning as in paragraph 8 (the
Exercise of options: death
25 The scheme may provide that, if a participant dies before exercising the
options, they may be exercised on or after the date of death but not later than
12 months after that date.
Exchange of share options
Exchange of options on company reorganisation
26 (1) A CSOP scheme may provide that if—
(a) there is a company reorganisation affecting a scheme company (that
is, a company whose shares may be acquired by the exercise of share
options obtained under the scheme: see paragraph 16), and
(b) a participant has obtained share options under the scheme which are
to acquire shares of the scheme company (“the old options”),
the participant may agree with the acquiring company to release the old
options in consideration of the participant being granted new share options.
(2) For the purposes of this paragraph there is a company reorganisation
affecting a scheme company if another company (“the acquiring
(a) obtains control of the scheme company—
(i) as a result of making a general offer to acquire the whole of
the issued ordinary share capital of the scheme company
which is made on a condition such that, if it is met, the person
making the offer will have control of that company, or
(ii) as a result of making a general offer to acquire all the shares
in the scheme company which are of the same class as those
subject to the old options;
(b) obtains control of the scheme company as a result of a compromise
or arrangement sanctioned by the court under—
(i) section 425 of the Companies Act 1985 (c. 6) (power to
compromise with creditors and members), or
(ii) Article 418 of the Companies (Northern Ireland) Order 1986
(S.I. 1986/1032 (N.I.6)) (corresponding provision for
Northern Ireland); or
(c) becomes bound or entitled to acquire shares in the scheme company
(i) sections 428 to 430 of that Act (power to acquire shares of
shareholders dissenting from schemes or contract approved
by majority), or
(ii) Articles 421 to 423 of that Order (corresponding provision for
(3) A scheme that makes provision under sub-paragraph (1) must require the
agreement referred to in that sub-paragraph to be made—
(a) where control is obtained in the way set out in sub-paragraph
(2)(a)(i) or (ii), within the period of 6 months beginning with the time
when the acquiring company obtains control and any condition
subject to which the offer is made is met,
(b) where control is obtained in the way set out in sub-paragraph (2)(b),
within the period of 6 months beginning with the time when the
court sanctions the compromise or arrangement, and
(c) where sub-paragraph (2)(c) applies, within the period during which
the acquiring company remains bound or entitled as mentioned in
Requirements about share options granted in exchange
27 (1) This paragraph applies to a scheme that makes provision under paragraph
26 (exchange of options on company reorganisation).
(2) The scheme must require the new share options to relate to shares in a
(a) is different from the company whose shares are subject to the old
(b) is either the acquiring company itself or some other company within
sub-paragraph (b) or (c) of paragraph 16 (shares must be ordinary
shares of certain companies), namely—
(i) a company which has control of the scheme organiser, or
(ii) a company which is, or has control of a company which is, a
member of a consortium owning either the scheme organiser
or a company having control of the scheme organiser.
For this purpose the control in question may be through the medium
of the acquiring company.
(3) The scheme must also require the new share options to be equivalent to the
(4) For the new options to be regarded as equivalent to the old options—
(a) the shares to which they relate must meet the conditions in
paragraphs 16 to 20 (types of share that may be used),
(b) they must be exercisable in the same manner as the old options and
subject to the provisions of the scheme as it had effect immediately
before the release of the old options,
(c) the total market value of the shares subject to the old options
immediately before the release of those options by the participant
(c) must equal the total market value, immediately after the grant of the
new options to the participant, of the shares subject to those options,
(d) the total amount payable by the participant for the acquisition of
shares under the new options must be equal to the total amount that
would have been so payable under the old options.
(5) For the purposes of the CSOP code, new share options granted under the
terms of a provision included in a scheme under paragraph 26 are to be
treated as having been granted at the time when the corresponding old
options were granted.
(6) This also applies for the purposes of the provisions of the scheme in their
operation, after the grant of the new options, by virtue of a condition
complying with sub-paragraph (4)(b).
Approval of schemes
Application for approval
28 (1) Where—
(a) a CSOP scheme has been established, and
(b) the scheme organiser makes an application to the Inland Revenue for
approval of the scheme,
the Inland Revenue must approve the scheme if they are satisfied that it
meets the requirements of Parts 2 to 6 of this Schedule.
(2) An application for approval —
(a) must be in writing, and
(b) must contain such particulars and be supported by such evidence as
the Inland Revenue may require.
(3) Once the Inland Revenue have decided whether or not to approve the
scheme, they must give notice of their decision to the scheme organiser.
Appeal against refusal of approval
29 (1) If the Inland Revenue refuse to approve the scheme, the scheme organiser
may appeal to the Special Commissioners.
(2) The notice of appeal must be given to the Inland Revenue within 30 days
after the date on which notice of their decision was given to the scheme
(3) If the Special Commissioners allow the appeal, they may direct the Inland
Revenue to approve the scheme with effect from a date specified by the
(4) The date so specified must not be earlier than that of the application for