Put and call options: a Russian and English law comparison

A table comparing and summarising the Russian and English legal positions on put and call options.  This is part of a set of resources comparing English and Russian law positions on commonly used terms in international transactions.  

Ian Ivory and Anton Rogoza, Goltsblat BLP, Moscow

Put and call options

Put and call options are used on joint ventures, M&A deals and financing structures (particularly where offshore holding companies are involved). They can be used:

  • To provide an exit strategy for one or more of the parties.

  • As an enforcement mechanism on default under a shareholders' agreements (particularly where there are concerns about trying to enforce directly against assets in Russia).

Put options

English law

Russian law

A put option is a right or option conferred on one party to require another to compulsorily purchase an asset (for example, shares) under the terms of a pre-agreed contract. The put option agreement contains all the terms of the option. For example:

  • The price payable for the shares.
  • The conditions and circumstances under which it can be exercised.

For further information, see Standard document, Put option agreement (www.practicallaw.com/8-201-5977) and its accompanying drafting note (www.practicallaw.com/6-201-5978).

Put options are not recognised. The law is currently incompatible with a key commercial element of any put option, namely that only one party (the holder) can decide whether to trigger its options to "put".

Conditional sale and purchase agreements are recognised. However, this is a two-way obligation, which means that once the conditions are satisfied, both parties must complete the sale and purchase.

Call options

English law

Russian law

A call option is the right for one party to require another party to sell its shares for a pre-determined price. The call option agreement may provide that if the grantor refuses to transfer the shares, the call option holder has an irrevocable power to both:

  • Sign the transfer on behalf of the guarantor.
  • Deal with the formalities of completion.

For further information see Standard document, Call option agreement (www.practicallaw.com/4-201-2438) and its accompanying drafting note (www.practicallaw.com/9-201-2662).

Call options are not recognised. The law is currently incompatible with a key commercial element of any call option, namely that only one party (the holder) can decide whether to trigger its options to "call".

Conditional sale and purchase agreements are recognised. However, this is a two-way obligation, which means that once the conditions are satisfied, both parties must complete the sale and purchase.

Powers of attorney

English law

Russian law

A power of attorney is a document by which one person gives another person the power to act on his behalf and in his name. For further information see Standard document, Power of attorney (www.practicallaw.com/0-107-4655) and its accompanying drafting note (www.practicallaw.com/8-107-4656).

Powers of attorney are recognised, but they cannot be irrevocable and can be cancelled by the grantor at any time. The appointed attorney would also owe duties to the grantor of the power of attorney which are likely to conflict with the attorney's use of its powers to force through a sale against the wishes of the grantor.

 
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