Schedule 4 Company Share Option Plan (CSOP): Shares to be used: More than one class of share
Schedule 4 CSOP scheme shares should be normal shares on normal terms (see ETASSUM43260). The purpose of paragraph 20 is to ensure that if the company whose shares are to be used in the Schedule 4 CSOP has more than one class of ordinary share capital, the scheme shares are not second-class shares of a class specially created for employee, but are shares “worth having”.
For companies with more than one class of shares paragraph 20(1) sets two tests, either of which, if satisfied, will provide a useful indication that the scheme shares are of a class “worth having”:
- either the shares will be worth having because they are “employee-control” shares which give the employees and directors (and ex-employees and ex-directors) control of the company (the employee-control test),
- or the shares will be worth having because the majority of the shares of that class are “open market shares” held by “outsiders” (i.e. non-employees and non-directors) who were presumably prepared to pay good money for them (the open market test).
It will usually be clear from the Articles of Association whether a company has more than one class of shares. Deferred and ordinary shares constitute separate classes of share. Convertible preference shares constitute a separate class to the ordinary shares to which they may be converted, until conversion takes place.