Put and Call options

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Gannons worked with an entrepreneur and a technology company to establish a joint venture between the two parties.

An established entrepreneur hired us to broker an agreement with a notable technology company. Our client ran a Fintech investment company that operated an online investment platform. The technology company wished to develop a payment application using our client’s assets and knowledge. Hence the two parties entered into discussions over embarking upon a joint venture.

The entrepreneur’s problem with a joint venture

While both parties were keen to work together under a joint venture structure, the entrepreneur had two major problems with doing so which needed addressing. Firstly, our client was unwilling to sell his existing business to the technology company at the current valuation. Secondly, he did not wish to give up his current role and work full time for the technology company.

Parameters for the joint venture to work

The joint venture structure had to be formulated in a way which permitted the entrepreneur to remain independent. Independence was to be preserved until the price was right for the technology company to acquire the assets of the entrepreneur’s business.

The solutions

We came up with several ideas to implement in the joint venture agreement. These would meet our client’s parameters to ensure his interests were protected, and the risks to him were minimised.


The entrepreneur works under a consultancy agreement. The entrepreneur would refer his industry contacts to the technology company and seek to establish channel partners. In return, the entrepreneur received commission linked to the “closed work” that the technology company received from his services.

Option agreement

To keep the entrepreneur engaged, the technology company proposed a share option. The option gave the entrepreneur the opportunity to participate in the technology company as a shareholder.

The entrepreneur would acquire 5% of the technology company’s share capital at the end of year one. For every year that the consultancy agreement continued thereafter, our client could acquire a further 1.5%, up to a maximum 11% stake.

We also prepared the appropriate tax advice that gave our client the full picture.

Shareholders’ agreement for the joint venture

We also suggested a shareholder agreement. That gave the entrepreneur certain rights to stop the directors of the technology company taking major steps without his approval.

Licensing agreement

The entrepreneur licences his database software to the technology company in return for a fixed royalty fee. The technology company would be given the option to buy the software if it reached a specified value. The software uses algorithms to compile lists of potential customers and clients for the business.

Protection of business assets

It was important for our client to protect his industry contacts whilst the joint venture was operative. Therefore we inserted bespoke intellectual property provisions to the consultancy agreement.

The idea was that the punitive consequences if the technology company stepped outside of the restrictions provided the best chance of compliance.

The restrictions

The technology company warranted and represented that at no time would it consider the contacts or clients to be its own. Furthermore on termination of the agreement, the technology company would cease to contact the clients.

The consultancy agreement also included a provision that the technology company would, if requested by the entrepreneur, provide a signed statement confirming its compliance with the intellectual property provisions. They could make this request at any time during the term of the agreement.

Put and call option over the entrepreneurs shares in the joint venture

We devised a put and call option arrangement over the entrepreneur’s shares.

Call option

Entitled the technology company to “call” on the entrepreneur to sell his shares in the technology company back to the technology company, at a price equal to fair value. The company could only exercise this option after three years had passed.

Our client wanted the option to exit in case he had to spend time at his own business. To compliment the “call” option, we also drafted a put option.

Put option

This let the entrepreneur “put” his shares in the technology company back onto the technology company, at a price equal to fair value.

The difference with the “put” option was that it could be exercised at any time and was not subject to any qualification. Hence our client had the opportunity to exit the joint venture as he wished

Company articles

Finally, for our client’s benefit, we suggested changes to the technology company’s articles. One of those changes was to ensure that any shareholder holding equal to, or in excess of 8.00% of the technology company’s share capital had the right to appoint a director.

The entrepreneur could then appoint himself as a director after year three, satisfying the criteria for entrepreneurs’ relief.

  • With the help of Gannons we were able to broker a great deal that worked for everyone.