Business share option: the subtleties of application and the reasons for contesting

An option is a financial instrument that grants the right, but not the obligation, to buy or sell a certain asset (for example, a share in a business) in the future at a predetermined price.  This is a kind of contractual insurance that allows you to protect your interests in conditions of uncertainty. In 2015, the rules governing options were added to the Civil Code, which led to their active use:

1. Options are widely used in corporate transactions.

They provide an opportunity to sell or buy a stake in a company under certain conditions, leave the company under control under sanctions and understand what to do if one of the co-owners falls under sanctions. Foreign companies often used options to recover Russian assets. Now the requirements for the repurchase of Russian assets have become tougher.

2. Options help to acquire, change or terminate a stake without going to court.

Their use is determined by the commercial agreements and goals of the parties. In recent years, interest in options has increased due to the geopolitical situation and sanctions.

3. In 2022, many foreign companies that wanted to leave the Russian market entered into reverse options in order to get their business back in the future. For example, Mercedes-Benz and Renault have included the right to repurchase in their deals. In 2023, the use of options became less frequent due to stricter regulation.

There are different types of options:

• for sale (put option) 

• for purchase (call option)

• regular

• penalty options – are used as a sanction for violation of agreements or unfair behavior.

When concluding options, problems often arise with notaries who may refuse to register this mechanism. There are also difficulties with the execution of an option if the acceptance conditions are not specified specifically enough.

Options are challenged in court on various grounds, such as non-compliance with the form or failure to specify the term of imprisonment. The judicial practice on options is contradictory and creates uncertainty for the parties.

Despite these factors, the advantages of using options outweigh the disadvantages, which determines the popularity of its use in corporate transactions.