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Share options: helping SMEs to compete

Paul Foley
The right share option plan can enable an SME to attract, retain and motivate key individuals. This article describes what is involved in creating and adopting a share option plan.

Tax-advantaged share option plans offer a way for SMEs to compete against big corporates

For small and medium-sized enterprises (SMEs), competing against large corporates, including Big Tech, is generally very difficult, whether as regards offering competitive employees and director remuneration packages or in developing competitive products.

Share options enable SMEs to compete

Tax advantaged share option plans offer a way for SMEs to compete against big corporates. See below on “Drafting a share option plan”.

What is a share option

A share option is a right given to an employee/director to buy an ordinary share in a company or in a group company at a specified price.

Tax advantaged share options

For a share option plan to enable SMEs attract, retain and motivate employees, it needs to be tax advantaged, such that there is no tax, universal social charge (USC) or pay related social insurance (PRSI) payable by the employee, on the grant of the share option, on the exercise of the share option and with capital gains tax only being payable on the disposal of the shares, at which time the sales proceeds will be available to discharge the capital gains tax due.

The Key Employee Engagement Programme (KEEP) applicable in respect of share options granted during the period 1st of January 2018 to end of December 2025 (arising from Budget 2023) is such a tax advantaged share option plan. Improvements to KEEP are expected to be incorporated in the 2023 Finance Bill when published. 

Drafting a share option plan

Where tax relief applies under KEEP for share options, relief cannot also be claimed under the Employment and Investment Incentive (EII).

However CGT “Entrepreneur’s Relief” may be available for the disposal of shares issued by the company on share options acquired under the KEEP where the shareholder (the employee or director) satisfies the requirements for CGT Entrepreneur’s Relief.

Benchmark the share option plan

In drafting a proposed share options plan, it ought to have been benchmarked against typical plans for the sector in which the company operates. This would include establishing:

  1. in aggregate how many shares, will shares options be granted. This is typically established by that percentage which a government venture agency might typically allow or the percentage which venture capitalists would allow, for the stage the company is at. This can vary from between 10% to 20% of the issued share capital;
  2. how many share options should be offered to each category of employee;
  3. the length of time before the share options vest;
  4. early exercise of granted share options and the conditions under which vesting might be accelerated and
  5. ease of transferring/selling shares issued on share options. International benchmark data can be obtained on these issues.

Type of shares

In the case of KEEP share option plans, the requirements include:

  1. the share options must be in respect of new ordinary fully paid up shares;
  2. the exercise price must be the market value of the same class of shares at the date of grant;
  3. the share options must not be exercisable within 12 months from the date of grant (limited exceptions apply);
  4. must not be exercisable more than 10 years from the date of their grant;
  5. must be within the maximum permitted limits for KEEP in terms of overall awards in the year; in all years of assessment; and annual emoluments; and
  6. be set out in a written contract setting out the number and description of shares which may be acquired by exercise of the option(s), the option price, and the period during which the share option(s) may be exercised.

Qualifying individuals

The employee or director must work full time, which is 30 plus hours per week, and he/she cannot hold a material interest in the qualifying company (in broad terms, more than 15%). More flexibility on these requirements (including for part time employees) from Government, are due to be commenced soon.  

Qualifying company

The requirements for the company availing of KEEP, include carrying on a qualifying trade, being an SME (as defined), be an unquoted company (Euronext Growth market excepted: and some other exceptions), not a company in difficulty and must not issue qualifying share options with a market value exceeding €3,000,000 (currently).

Relationship with other agreements

The share option plan and share option contract, must align with any shareholders agreement proposed or already in place and must fully align with the employment contract.


In a private company, the share options contract, will not be assignable or transferable by an employee/director. Nor will the share options contract allow the employee/director encumber his or her share options.


An employee/director holding share options, in most plans, will not be protected from dilution. So if the company allots more shares to others, between the date of the grant of the options and the date they are exercised, the employee/director’s percentage holding of shares in the company post exercise will be smaller. However the value of the company may well be much greater, hence the value of the shares issued on exercised options will be worth more.

Share options: leaver and lapse provisions

Leaver and lapse proposals are the most difficult areas of a share options plan and accordingly Revenue requirements for (a) unapproved share options plans and (b) for tax advantaged share options plans, should be checked and the plan should also be benchmarked against the market, particularly against the competition, before they are drafted. Amongst the considerations are, the employee/director:

  1. leaving employment (good leaver or bad leaver);
  2. dying;
  3. getting ill;
  4. accelerated vesting;
  5. the employee/director wishing to exercise options in first year;
  6. asset sale, share sale, IPO, takeover, corporate reorganisation; the company raising new private investment; and
  7. the circumstances in which share options will lapse. 

KEEP requirements need to be taken into account in all these circumstances, so that the tax reliefs are not lost or refused. 

October 2022 © Copyright Paul Foley – All Rights Reserved.
For a quotation on putting a share options plan, a shareholders or investment agreement or employment agreement in place, the firm can be contacted by email at or via the Contact Form

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