Case Study

Put and call options as part of company sale

Why our clients needed a put and call option

We put in place put and call options to safeguard our clients, who had sold their business to a buyer who wanted to pay part of the purchase price by way of shares. The options were important in the event of a future sale of the buyer’s businesses to ring fence a share of that future sale value for our clients. The Purchaser itself was a subsidiary of a larger group so the future sale value of our client’s business was uncertain and not quantifiable. The solution we agreed was a put and call option agreement.

What are Put and Call Options?

In corporate transactions, a put option grants a right (but not an obligation) for a shareholder to sell  shares to the purchaser at a pre-agreed price or at a price to be determined based on a pre-agreed formula.

A call option is the mirror of this, being a right (but not an obligation) for the purchaser to buy the shares woth pre-agreed terms. This gives the buyer the security that it can purchase the shares at some point in the future.

Key issues with Put and Call Options

There are a number of factors to consider :-

  • When the options should become exercisable (the Option Period)
  • What would trigger the option?
  • When the options should lapse (or no longer be exercisable)?
  • Tax issues
  • Whether the option can be exercised only all at once or at different times (usually referred to as tranches)?

It is important to be sure that the Options do not conflict with any rights of first refusal on transfer of shares in the Company Articles. Therefore other shareholders may be required to waive their pre-emption rights and any objections to the Option being granted.

How it worked in our client’s case

The following were also important considerations in our client’s situation :-

  • Valuation mechanism for the put option – the price at which the call option could be exercised was determined based on EBITDA of the company as opposed to EBITDA of the group. EBITDA is Earnings before Interest, Taxation, Depreciation and Amortisation and is a means of calculating the profit of a business.
  • Call option – this entitled the purchaser to “call” on the shareholder to sell his shares in the company to the holdco just ahead of an exit event, at a price determined by looking at the EBITDA of the company vs the EBITDA of the group.
  • The trigger for and the expiry for the Put option? – The difference from the “call” option was that the “put” option could be exercised after a certain number of years (rather than just waiting for an exit event).



Catherine Gannon

Catherine is an extremely experienced solicitor, having been qualified since 2000, and deals with all types of corporate and commercial matters and advice and also tax law.

Catherine is well known for turning complex problems into solutions, priding herself on always finding a way. In her spare time she runs Gannons!

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