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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): Exchange of share options: Introduction

Following a company re-organisation it may not be appropriate for employees to hold options over shares in a company which has become a subsidiary. Paragraphs 26 & 27 set out the requirements in order to allow for an exchange of options.

Schemes rules may give a right to exercise in the event of a change of control, but it may not be possible for existing options to be exercised because:

  • the options will normally be expressed to be over shares which satisfy paragraphs 16-20 (and no such shares may exist following the takeover), or
  • the relevant requirements of paragraph 17 ceasing to be satisfied may mean that the scheme no longer qualifies as a Schedule 4 CSOP scheme.

Companies may consider it more appropriate for employees to hold options over shares in the new “parent” company:

  • because the original scheme shares may no longer satisfy the requirements of paragraph 17 (if they are in an unlisted company taken over by another unlisted company),  or
  • even if the original scheme shares still satisfy paragraph 17, the existing options may be over shares in an otherwise wholly owned subsidiary for which there may be no ready market.