12 Sep Employee Stock Options as an Incentive in Finland
Many companies use stock option plans to reward employees and to increase the employees’ loyalty to the company. These plans are contracts between a company and its employees that give employees the right to buy a specific number of the company’s shares on pre-determined terms.
A decision to issue option rights requires a qualified majority at the General Meeting. The General Meeting may also authorize the Board to decide on the issue of option rights. A decision on the issue of option rights shall contain detailed information regarding the issue, such as the subscription price, the subscription period and the deadline for the payment of the shares. In addition, the decision may specify, for example, how the issued option rights will be taken into account in future share issues. Decisions on the issue of option rights, as well as the conditions applied, must be registered with the Trade Register no later than one month after the date of issue.
The company and an employee may also agree on the terms and conditions of the stock options in a Stock Option Agreement, where the needs and objectives of the arrangement will be taken into account. The option agreement may include, among other things, redemption terms for the shares in the event of termination of the employment. The option agreement may give the employee the right to subscribe for shares in stages or to determine that the subscription price is dependent on the employee’s contribution or the company’s earnings.
An option right is not a taxable income in itself. The tax liability arises only at the time when the employee chooses to utilize the option right and to subscribe for shares in the company. In the employee’s taxation the difference between the fair price of the share and the subscription price of the share is considered to form personal taxable income for the employee. The fair price of a share in a listed company is considered to be the market value of the share on the subscription date. For a non-listed company, the fair price is determined in the same manner as in a directed share issue.
MK-Law assists in the planning and implementation of various incentive schemes including employee stock options.