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Paragraph 20 was repealed on 6 April 2023: Unexercised options granted prior to 6 April 2023 will benefit from the changes to the share class requirement.

Schedule 4 CSOP scheme shares should be normal shares on normal terms (see ETASSUM43260)

Options granted prior to 6 April 2023
Options granted prior to 6 April 2023 must have met the requirements of paragraphs 16 - 20 at the date of grant to be considered qualifying options. If the options are exercised on or after 6 April 2023 only the requirements of paragraph 16 - 18 need to be met at the date of exercise.

The purpose of paragraph 20 is to ensure that if the company whose shares are to be used in the Schedule 4 CSOP has more than one class of ordinary share capital, the scheme shares are not second-class shares of a class specially created for employee, but are shares “worth having�.

For companies with more than one class of shares paragraph 20(1) sets two tests, either of which, if satisfied, will provide a useful indication that the scheme shares are of a class “worth having�:

• either the shares will be worth having because they are “employee-controlâ€� shares which give the employees and directors (and ex-employees and ex-directors) control of the company (the employee-control test),
• or the shares will be worth having because the majority of the shares of that class are “open market sharesâ€� held by “outsidersâ€� (i.e. non-employees and non-directors) who were presumably prepared to pay good money for them (the open market test).

It will usually be clear from the Articles of Association whether a company has more than one class of shares. Deferred and ordinary shares constitute separate classes of share. Convertible preference shares constitute a separate class to the ordinary shares to which they may be converted, until conversion takes place.