What Are Share Option Agreements?
Share option agreements grant investors the right, but not the obligation, to purchase company shares at a predetermined price (strike price) within a specified time period. This allows investors to benefit from future company growth while limiting downside risk.
In Ghana's investment landscape, share options are commonly used in early-stage companies and employee incentive plans, providing flexibility for both investors and businesses.
How You Earn Returns
Price Appreciation
Exercise your option to buy shares at the strike price and sell them at the current market price if higher.
Strategic Timing
Choose when to exercise options based on company performance and market conditions.
Example Return Calculation
If you have options to buy 1,000 shares at GHS 2.00 each and the share price rises to GHS 5.00, you can exercise your options for GHS 2,000 and immediately sell for GHS 5,000 - a GHS 3,000 profit.
Key Features
Fixed Strike Price
Purchase shares at predetermined price regardless of market value
Limited Downside
Maximum loss is the option premium paid
Exercise Period
Flexible timing to exercise within agreed timeframe
No Obligation
Option to walk away if share price doesn't increase
Risks to Consider
Expiration Risk
Options become worthless if not exercised before expiration date.
Price Volatility
Share prices may not reach strike price, making options unprofitable.
Liquidity Constraints
Difficulty selling shares after exercise in private companies.
Quick Facts
Legal Framework
Share options in Ghana are governed by:
- • Companies Act, 2019 (Act 992)
- • Securities Industry Act, 2016
- • SEC Regulations on Derivatives
- • Contract Law Principles