Option clauses: one of many forms of securing the parties’ interests in the transaction market

25 July 2023 | Knowledge, News

Option clauses are one of many well-known forms of securing the interests of parties to a contract in the transaction market. Their primary purpose is to provide a ‘simplified’ exit for the investor in the event of a risk of project failure.

The parties to a transaction may also agree that, subject to the implementation of the business plan phase, the project founders will be able to request the repurchase (for example from the investor) of a portion of the shareholding in the share capital of the limited liability company, for a predetermined price.

Nature of option clauses

Option clauses enable one or both parties to the agreement to sell or buy (as the case may be) shares in the future.

The conditions for exercising this option are usually specified in the shareholders’ agreement, along with provisions concerning the price of the shares.

The price may be either a fixed value determined in various ways at the time of drafting the option agreement (including as a flat-rate amount), or it may be calculated at the time of the decision to exercise the option, on the basis of certain ratios or mechanisms described in advance in the agreement.

Deadline for the exercise of the option

Upon expiry of the time limit set by the parties, the option will cease to be exercisable. This means that the option will expire and the parties will be free to dispose of their shares in the company, unless they are bound by other provisions restricting the disposal of the shares covered by the option.

Types of options

Depending on in whose favour the provisions are drafted, options are divided into:

  • Call options – the right to demand the repurchase of the relevant shares subject to the fulfilment of certain conditions within a specified period of time. In such a case, the obligor under the call option will be obliged to sell the shares covered by the option agreement to the obligee (the option holder)
  • Put options – the right of the option holder to require a given shareholder or a third party (the option issuer) to purchase from them a specific block of shares in the company
  • Buy-sell options – a combination of the above clauses, guaranteeing the obligee the possibility of buying from or selling to the obligor, a specified number of shares (at the obligee’s own choice) at a specified time

No detailed regulation of options in Polish law

Polish law does not regulate option clauses.

Therefore, in order to be able to effectively exercise option rights, it is customary in transactional practice to use the forms of security regulated by the Civil Code such as:

  1. A preliminary agreement for the sale or repurchase of shares; or
  2. An irrevocable offer to sell or repurchase shares (depending on the type of option)

Both forms are usually executed on the date of the transaction and, importantly, in writing with a notarised signature.


Knowledge of option clauses is crucial not only for investors, but also for startup founders negotiating with them, hence the importance of protecting each party to the transaction from the risk of ineffective exercise of the option right.

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Patrycja Wakuluk

Source: Rzeczpospolita

Date: 23.06.2023

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