Finance Act 1984

Section 38(1).

SCHEDULE 10 APPROVED SHARE OPTION SCHEMES

Approval of schemes

1 (1) On the application of a body corporate (in this Schedule referred to as " the grantor ") which has established a share option scheme, the Board shall approve the scheme if they are satisfied that it fulfils the requirements of this Schedule; but shall not approve it if it appears to them that there are features of the scheme which are neither essential nor reasonably incidental to the purpose of providing for employees and directors benefits in the nature of rights to acquire shares.

(2) An application under sub-paragraph (1) above shall be made in writing and contain such particulars and be supported by such evidence as the Board may require.

(3) Where the grantor has control of another company or companies, the scheme may be expressed to extend to all or any of the companies of which it has control and in this Schedule a scheme which is expressed so to extend is referred to as a " group scheme ".

(4) In relation to a group scheme the expression "participating company" means the grantor or any other company to which for the time being the scheme is expressed to extend.

(5) Where the provisions of a scheme are approved in pursuance of an application made under this paragraph before 1st January 1985, section 38 of this Act shall apply in relation to any right obtained before 1st July 1985 as if the scheme containing those provisions had always been approved.

2 (1) If, at any time after the Board have approved a scheme, any of the requirements of this Schedule cease to be satisfied or the grantor fails to provide information requested by the Board under paragraph 14 below, the Board may withdraw the approval with effect from that time or such later time as the Board may specify.

(2) If an alteration is made in the scheme at any time after the Board have approved the scheme, the approval shall not have effect after the date of the alteration unless the Board have approved the alteration.

3 If the grantor is aggrieved by—

(a) the failure of the Board to approve the scheme or to approve an alteration in the scheme ; or

(b) the withdrawal of approval;

it may, by notice in writing given to the Board within thirty days from the date on which it is notified of the Board's decision, require the matter to be determined by the Special Commissioners, and the Special Commissioners shall hear and determine the matter in like manner as an appeal.

Eligibility

4 (1) The scheme must not provide for any person to be eligible to participate in it, that is to say to obtain and exercise rights under it—

(a) unless he is a full-time director or qualifying employee of the grantor or, in the case of a group scheme, of a participating company;

(b) at any time when he has, or has within the preceding twelve months had, a material interest in a close company within the meaning of Chapter III of Part XI of the Taxes Act, which is—

(i) a company the shares of which may be acquired pursuant to the exercise of rights obtained under the scheme; or

(ii) a company which has control of such a company or is a member of a consortium which owns such, a company.

(2) Notwithstanding sub-paragraph (1)(a) above, the scheme may provide that a person may exercise rights obtained under it despite having ceased to be a full-time director or qualifying employee.

(3) In determining whether a company is a close company for the purposes of sub-paragraph (1) above, section 282(1)(a) of the Taxes Act (exclusion of companies not resident in United Kingdom) and section 283 of that Act (exclusion of certain companies with quoted shares) shall be disregarded.

(4) In determining for the purposes of this paragraph whether a person has or has had a material interest in a company, subsection (6) of section 285 of the Taxes Act (interest paid to directors and directors' associates) and paragraph (ii) of the proviso to section 303 (3) of that Act (meaning of " associate ") shall have effect with the substitution for the references in those provisions to 5 per cent, of references to 10 per cent.

Limitation of rights

5 (1) The scheme must provide that no person shall obtain rights under it which would, at the time they are obtained, cause the aggregate market value of the shares which he may acquire in pursuance of rights obtained under the scheme or under any other scheme approved under this Schedule and established by the grantor or by any associated company of the grantor (and not exercised) to exceed or further exceed the appropriate limit.

(2) The appropriate limit is the greater of—

(a) £100,000; or

(b) four times the amount of the relevant emoluments for the current or preceding year of assessment (whichever of those years gives the greater amount).

(3) Where there were no relevant emoluments for the preceding year of assessment, sub-paragraph (2) above shall apply with the following paragraph substituted for paragraph (b)—

“(b) four times the amount of the relevant emoluments for the period of twelve months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments”.

(4) For the purposes of sub-paragraph (1) above, the market value of shares shall be calculated as at the time when the rights in relation to those shares were obtained or, in a case where an agreement relating to them has been made under paragraph 13 below, such earlier time or times as may be provided in the agreement.

(5) For the purposes of sub-paragraph (2) above the relevant emoluments are such of the emoluments of the office or employment by virtue of which the person in question is eligible to participate in the scheme as are liable to be paid under deduction of tax pursuant to section 204 of the Taxes Act (pay-as-you-earn), after deducting from them amounts included by virtue of Chapter II of Part III of the [1976 c. 40.] Finance Act 1976.

Scheme shares

6 The scheme must provide for directors and employees to obtain rights to acquire shares (in this Schedule referred to as "scheme shares") which satisfy the requirements of paragraphs 7 to 11 below.

7 Scheme shares must form part of the ordinary share capital of—

(a) the grantor ; or

(b) a company which has control of the grantor ; or

(c) a company which either is, or has control of, a company which—

(i) is a member of a consortium owning either the grantor or a company having control of the grantor; and

(ii) beneficially owns not less than three twentieths of the ordinary share capital of the company so owned.

8 Scheme shares must be—

(a) shares of a class quoted on a recognised stock exchange ; or

(b) shares in a company which is not under the control of another company ; or

(c) shares in a company which is under the control of a company (other than a company which is, or would if resident in the United Kingdom be, a close company within the meaning of section 282 of the Taxes Act) whose shares are quoted on a recognised stock exchange.

9 Scheme shares must be—

(a) fully paid up;

(b) not redeemable ; and

(c) not subject to any restrictions other than restrictions which attach to all shares of the same class.

10 (1) In determining for the purposes of paragraph 9(c) above whether scheme shares which are or are to be acquired by any person are subject to any restrictions, there shall be regarded as a restriction attaching to the shares any contract, agreement, arrangement or condition by which his 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 by which such a disposal or exercise may result in any disadvantage to him or to a person connected with him.

(2) Sub-paragraph (1) above does not apply 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 Rules set out in the Model Code for Securities Transactions by Directors of Listed Companies issued by the Stock Exchange in April 1981.

11 Except where scheme shares are in a company whose ordinary share capital consists of shares of one class only, the majority of the issued shares of the same class must be held by persons other than—

(a) persons Who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the grantor or any other company and not in pursuance of an offer to the public ;

(b) trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in paragraph (a) above; and

(c) in a case where the shares fall within sub-paragraph (c) and do not fall within sub-paragraph (a) of paragraph 8 above, companies which have control of the company whose shares are in question or of which that company is an associated company.

Transfer of rights

12 (1) The scheme must not permit any person obtaining rights under it to transfer any of them but may provide that if such a person dies before exercising them, they may be exercised after, but not later than one year after, the date of his death.

(2) Where the scheme contains the provision permitted by sub-paragraph (1) above and any rights are exercised—

(a) after the death of the person who obtained them ; but

(b) before the expiry of the period of ten years beginning with his obtaining them ;

subsection (3) of section 38 of this Act shall apply with the omission of the reference to the conditions mentioned in subsection (4).

Share price

13 The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme must be stated at the time the right is obtained and must not be manifestly less than the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or tunes as may be provided in the agreement, but the scheme may provide for such variation of the price so stated as may be necessary to take account of any variation in the share capital of which the scheme shares form part.

Information

14 The Board may by notice in writing require any person to furnish them, within such time as the Board may direct (not being less than thirty days), with such information as the Board think necessary for the performance of their functions under this Schedule, and as the person to whom the notice is addressed has or can reasonably obtain, including in particular information—

(a) to enable the Board to determine—

(i) whether to approve a scheme or withdraw an approval already given; or

(ii) the liability to tax, including capital gains tax, of any person who has participated in a scheme ; and

(b) in relation to the administration of a scheme and any alteration of the terms of a scheme.

Interpretation

15 (1) In this Schedule—

• " associated company " has the same meaning as in section 302 of the Taxes Act;

• " control" has the same meaning as in section 534 of the Taxes Act;

• " grantor " has the meaning given by paragraph 1(1) ;

• " group scheme" and, in relation to such a scheme, " participating company" have the meanings given by paragraph 1;

• " market value " has the same meaning as in Part VIII of the [1979 c. 14.] Capital Gains Tax Act 1979 ;

• " qualifying employee" in relation to a company, means an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) who is required, under the terms of his employment, to work for the company for at least twenty hours a week;

• " scheme shares " has the meaning given by paragraph 6 ; and

• " shares " includes stock.

(2) Section 303(3) of the Taxes Act (meaning of "associate") shall have effect in a case where the scheme is a group scheme, with the substitution of a reference to all the participating companies for the first reference to the company in paragraph (ii) of the proviso to that subsection.

(3) Section 533 of the Taxes Act (connected persons) shall apply for the purposes of this Schedule.

(4) For the purposes of this Schedule a company is a member of a consortium owning another company if it is one of a number of companies which between them beneficially own not less than three-quarters of the other company's ordinary share capital and each of which beneficially owns not less than one-twentieth of that capital.