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E-library Corporate Law Put option agreement (French business law)

Put option agreement (French business law)

10 Jan 2012

A put option agreement, or simply called a put, is a contract entered into by a potential seller of company shares or securities (the “Seller”) with the potential purchaser of such securities (the “Purchaser”), whereby the Purchaser undertakes to purchase from the Seller its securities if the Seller so requires.

Whereas the Seller does not have an obligation to sell, the Purchaser has an obligation to purchase if the Seller exercises the put.

Put options are frequently used to secure the exit from a company:

  • of minority shareholders, who may thus be granted the right to force the majority shareholders to purchase their minority stake, or
  • of executives or employees who own equity incentives or stock options in the company, upon termination of their employment contract.

To be valid under French law, a put option must specify:

  • the number and type of securities which the Purchaser must purchase upon exercise of the put by the Seller, and
  • the price payable for the purchase of such securities (or a mechanism allowing for its determination).

In the event that, upon exercise of the put, the Purchaser does not comply with its obligation to purchase, the Purchaser may be liable for damages for breach of contract.

In certain cases, a put option may be accompanied by a call option.

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