Designs such as an option agreement have been available to High-Tech Park resident companies for more than 5 years. Starting from November 2024, these legal structures will be available to all resident companies in Belarus. Experienced lawyers who cooperate with residents of the Hi-Tech Park and are familiar with issues related to the conclusion and execution of option agreements will help to understand the features of new types of agreements.
Option agreement
An option agreement is a contract between two parties in which one party grants the other party the right (but not the obligation) to buy or sell a certain asset (for example, securities, currency, raw materials) at a predetermined price at a certain point in the future, or within a certain period of time. Thus, the buyer of the option gets the opportunity, but not the obligation, to carry out the transaction, and the seller of the option undertakes to carry out the transaction if the buyer decides to exercise his right.
The option agreement itself is an independent document that establishes the conditions for fulfilling the main obligation and accepting its results.
Thus, after the conclusion of an option agreement, subject to the conditions set out in it, one of the parties has the right to require the other to perform certain actions or refrain from them. As a result, the option agreement becomes a convenient tool for managing risks in the relevant commodity markets.
Option to conclude a contract
An option to conclude a contract gives the holder the right, but not the obligation, to conclude a certain contract in the future at a certain price and with certain conditions. For example, the owner of an option to conclude a contract for the purchase of property will have the right to buy this property at a certain price in a certain period of time. This gives the option holder flexibility and the ability to protect themselves from potential price changes in the future.
The option to conclude a contract provides an opportunity to describe the terms of the main contract before it is concluded, and obliges the parties to conclude a deal on pre-agreed terms. Thus, the option to conclude a contract is an important contractual structure, especially in cases where one of the parties is not sure whether it is necessary to conclude the main contract in advance, but both parties are interested in establishing a preliminary contractual relationship.
Optional employee programs
Employee Stock Option Plans are corporate processes in which a company grants its employees the right to purchase shares of a company at a certain price in a certain period of time.
These programs are commonly used by companies to attract and retain talented employees, as well as to encourage their participation in the success of the company. Employee option programs can be part of employee compensation and create motivation to maintain and grow the value of the company.
How the option to conclude a contract is applied
Step 1. In the case of an option to conclude a contract, the startup offers the investor the opportunity to purchase a share in its authorized capital.
Step 2. At the moment, the investor is not sure about the prospects of the startup and is not ready to invest in it, but he also does not want to completely give up this opportunity. Therefore, they enter into an option agreement to purchase a share within a certain period (for example, a year).
Step 3. The investor pays the startup an option premium and now has the right at any time (during the agreed year) to purchase a share in the startup under the already agreed conditions.
How the option agreement is applied
Step 1. The investor has already shown great interest in the startup and he is not satisfied with the possibility of concluding a contract in the future, he needs an existing contract on hand. However, he is currently not ready to fulfill it yet. In this case, an option agreement is concluded to acquire a stake in a startup, but the startup will be able to demand its execution only if certain conditions are met, for example, certain economic, qualitative or quantitative indicators are achieved.
Step 2. A startup may require an investor to purchase a share in its authorized capital, if all conditions are met.
Step 3. The investor acquires a stake in a company with already reduced risks, since the conditions set by him have been fulfilled.
What the features of the option are for company employees
Employee options act as a form of motivation. Employee options are not shares in the authorized capital or shares. This is an agreement under which, if an employee reaches certain conditions, the company undertakes to include the employee in the ownership structure, providing him with shares.
The conditions that an employee must achieve in order to become one of the owners of the company are determined by the company itself. For example, it may be the period of work in the company, certain qualitative and quantitative parameters.
Usually, an agreement with an employee stipulates what will happen to the company’s shares (shares in the authorized capital) after the employee is fired. For example, you can set a ban on the sale or compulsory purchase of shares in case of dismissal of an employee.
The option program in the company is formed using a special package of documents, which usually includes:
- Employee Stock Ownership Plan (ESOP), which sets out the basic conditions for the issuance and exercise of options;
- An option agreement with an employee;
- A number of corporate documents approving ESOP and option agreements.
Why it is important for companies to navigate issues related to options
For residents of the Hi-Tech Park and for other companies, it is important to know about option agreements for several reasons:
- Financial flexibility: Options can provide companies with financial flexibility, allowing them to protect their assets from market fluctuations, as well as participate in potentially profitable transactions in the future.
- Risk management: Options can help manage risks related to uncertainty in pricing, currency exchange rates, interest rates and other factors.
- Employee incentives: Employee Stock Option Plans can be used to motivate and retain key professionals.
- Financial strategy: Understanding option agreements will help companies develop more effective financial strategies to ensure business growth and sustainability.
- Financial planning: Knowledge of option agreements will help residents of the Hi-Tech Park to better plan their financial resources and make informed decisions when developing their projects.
How to contact us
For more information or advice on option agreements, do not hesitate to contact us. We are here to help and support you.
Phone and e-mail communication options are available for your convenience:
- +375293664477 (WhatsApp/Telegram/Viber);
- info@spex.by.
