A share award letter (or a share award agreement) is a private contractual arrangement between a company and a specific employee setting out the terms under which the employee will be awarded shares in the company.
Unlike an ESOS scheme typically seen in public listed companies, a share award letter:
- is not a scheme offered to a class of employees
- does not involve by-laws or a regulatory-style framework
- is negotiated and agreed on a one-to-one basis
In short, it is a tailored contractual document rather than a company-wide equity programme.
Why use a share award letter
If you are a business owner looking to retain a star employee by offering them shares, you may wonder whether the company can simply issue or transfer the shares to them.
While this is possible from a corporate mechanics perspective, doing so without a share award letter means the equity is issued without clearly documenting the agreed terms. If there is no Shareholders’ Agreement (SHA) in place, this may also lead to uncertainty around exits and share transfers, as well as misalignment between shareholders.
Even if a SHA is in place, founders document employee share awards separately to capture the tailored award mechanics and conditions, and below are some of the key commercial terms commonly involved:
| Key Term | What It Covers |
| Number of shares | The number of shares to be awarded |
| Class of shares | Whether the shares are ordinary or preference shares |
| Award conditions | Conditions tied to employment or agreed milestones including when the shares are treated as vested (beneficially owned) |
| Award timing | When the shares will be issued or transferred |
| Transfer restrictions | Restrictions on selling, transferring, or disposing of the shares |
| SHA alignment | Requirement for the employee to be bound by the SHA, typically via a Deed of Adherence |
| Precedence of share award letter | Whether the share award letter prevails if there is inconsistency with the SHA |
| Repurchase option | The company’s right to procure a repurchase of the shares if the employee leaves or commits misconduct |
| Tax obligation | Clarification that tax liability arising from the share award rests with the employee |
The above is a brief overview only, and in practice, share award letters are highly customisable depending on the company’s shareholding structure and the specific commercial arrangements agreed with the employee.
Let ELP help with your shareholder arrangements
We regularly advise and assist clients on shareholder matters, including drafting and reviewing Shareholders’ Agreements and related documents such as share award letters for employees.
If you are considering awarding shares to a key employee or would like to review whether your current shareholders’ agreement supports such arrangements, get in touch with ELP for a free consultation.
