Share options for a UAB employee: how to grant them and what to write

The word “option” does not appear in the law. In practice it means an agreement that an employee who meets certain conditions will acquire the right to buy shares in the company. In a UAB (private limited liability company) this can be done in three ways: a shareholder sells their own shares under an option agreement, the company grants shares under Share Grant Rules approved by the general meeting of shareholders, or the company issues employee shares. The first question we ask a client is always the same: who is giving the shares? The answer decides which documents are needed. An option does not replace pay, and it cannot oblige the employee to stay for a set period. Vesting and a buy-back right are used for that.

What Share Grant Rules (Akcijų suteikimo taisyklės) are and what majority approves them is summarised in our article on the Law on Companies amendments on granting shares to employees (in Lithuanian). This article covers how to choose a route and what to put in the documents. We do not assess the tax consequences here. They are worth checking separately before signing.

The first question: who gives the shares

When a client tells us that a new manager or specialist will receive part of the company’s shares, we clarify a few things before drafting:

• whether the shares come from one of the shareholders (and which one), or whether the company itself will issue new shares that the employee will have the right to subscribe and pay for;
• whether the right arises only for time served, or also for the company’s results (revenue, performance indicators);
• whether all the shares are acquired at once after a set time, or in parts each year;
• for what amount the employee will buy them;
• what happens if the employee leaves.

Route one: a shareholder’s option

The simplest route is an agreement between a shareholder (the option grantor) and the employee. The law does not regulate such an agreement separately, but the parties may also conclude contracts not provided for in the Civil Code, as long as this does not contradict the law (Article 6.156(1) of the Civil Code of the Republic of Lithuania (CK)).

When the employee exercises the option, an ordinary sale of shares takes place. That is when the other shareholders’ pre-emption right matters. A shareholder intending to sell shares must notify the company in writing (Article 47(1) of the Law on Companies of the Republic of Lithuania (ABĮ)), and the other shareholders have a pre-emption right to buy all the shares being sold (ABĮ Article 47(2)). The articles of association may disapply the pre-emption right or set a different sale procedure (ABĮ Article 47(9)). So before signing the option agreement, check the articles of association, or obtain the other shareholders’ waiver in advance. How to do that without delay is explained in our article on the share pre-emption right.

A UAB share sale agreement is in simple written form, except where the Civil Code requires notarial form (ABĮ Article 47(10)). When a notary is needed we covered separately.

Route two: the company, under Share Grant Rules

The company itself may grant shares to employees of the company, its parent or its subsidiary, including the manager and members of the supervisory board and the management board, without payment or for partial consideration (ABĮ Article 47¹(1)). Shares cannot be granted to a shareholder whose shares carry 1/20 or more of all votes (ABĮ Article 47¹(1)).

Shares are granted by issuing a new issue or by transferring the company’s own shares (ABĮ Article 47¹(2)). For a new issue, the company must have a reserve for granting shares (ABĮ Article 47¹(3)). Where shares are granted without payment, they are paid for from the company’s funds (ABĮ Article 47²(1)). The company may acquire its own shares for this purpose by a decision of the board (or, if there is no board, the manager) (ABĮ Article 54(21)), but the nominal value of all its own shares cannot exceed 1/10 of the share capital (ABĮ Article 54(3)).

Share Grant Rules are approved by the general meeting of shareholders (ABĮ Article 20(1)(23)), by a majority of at least 2/3 of the votes of the shareholders present (ABĮ Article 28(1)(13)). The rules must state the class and nominal value of the shares, the groups of persons, the method of granting, the body that decides and its procedure (ABĮ Article 47¹(5)). The decision to grant shares cannot be taken by a company body whose members receive the shares (ABĮ Article 47¹(11)). This route does not apply to companies in which the state or a municipality holds shares carrying more than 1/2 of all votes, or to their subsidiaries (ABĮ Article 47¹(13)).

The most useful practical option is Article 47¹(6) (ABĮ Article 47¹(6)). The rules may set the maximum part of the share capital that granted shares may make up, as well as restrictions on disposing of the granted shares and their duration. The first is the employee option “pool” that investors often ask about. The second makes it possible to restrict transfer: as a rule the company cannot restrict the transfer of fully paid shares, except where the restrictions are set in the Share Grant Rules (ABĮ Article 46(8)). A document confirming the restrictions is filed with the register keeper within 10 working days of the rules being approved (ABĮ Article 47¹(12)). From 1 November 2026 the law calls it the register data keeper (ABĮ Article 47¹(12), as in force from 1 November 2026).

Where new shares are issued to implement the rules, the shareholders’ pre-emption right can be withdrawn without having to name in advance the persons who will be entitled to acquire the shares (ABĮ Article 57(5)).

Route three: employee shares

If the articles of association provide for it, the company may issue ordinary shares with the status of employee shares (darbuotojų akcijos) (ABĮ Article 43(1)). This route does not suit a manager: members of the board, the supervisory board and the company’s manager have no right to acquire employee shares (ABĮ Article 43(2)). The subscription agreement sets a period during which the shares may be transferred only to another employee of the company, of no more than 3 years (ABĮ Article 43(3)). Part of the amount may be paid by deduction from pay, but only if the employee wishes, and forcing an employee to buy shares is prohibited (ABĮ Article 43(4)).

What to put in the option agreement

Based on the option agreements we have drafted and negotiated, we suggest going beyond the number of shares. The agreement should set out clearly:

1. The option grantor and the source of the shares: a shareholder or the company.
2. Vesting conditions: after how long and/or on reaching which results the right to acquire shares arises. The whole right can arise after a number of years, or in parts each year.
3. Exercise period: by when the employee may exercise the option. In one draft we negotiated, this period was missing, and it was the client who noticed. Without it, it is unclear when the grantor’s obligation ends.
4. Purchase amount and payment. In practice, shares are most often sold to the employee at nominal value.
5. Buy-back right. Our suggested wording: if the employment ends, on whatever ground, the shareholder or a third party it names acquires the right to buy back the shares the employee acquired, and the employee undertakes to sell them. The buy-back amount is the market value on the buy-back date, set by a valuer appointed by the shareholder. If the employee disagrees, each party appoints an independent expert, and if they cannot agree, they jointly appoint a third. Set the notice, valuation and payment periods in the agreement.
6. Inheritance: the buy-back right also applies to heirs, who are paid an amount calculated in the same way.
7. Transfer restrictions: until the shares are fully paid for, the employee may not transfer, pledge or otherwise encumber the option right or the shares. This is a contractual restriction. Where the employee subscribes new shares and has not yet paid for them in full, the law also prohibits transferring them (ABĮ Article 46(7)). After that, transfer requires the shareholder’s consent or is subject to a pre-emption right.
8. The shareholder’s right to assign the buy-back option to third parties without the employee’s consent, if the shareholder needs it.

What to write in the employment contract

A reference in the employment contract to a separate option agreement is enough. Do not move the option terms themselves into the employment contract. There are three reasons.

First, pay must be paid in money (Article 139(3) of the Labour Code of the Republic of Lithuania (DK)). The employment contract sets a monthly salary or pay per hour not lower than the statutory minimum, and the parties may also agree on allowances, bonuses or other additional pay (DK Article 34(3)). An option is an additional benefit, not a part of pay that could replace money.

Second, an employee cannot be tied to an obligation to work for a set period. An employee may terminate the employment contract by written notice given at least twenty calendar days in advance (DK Article 55(1)). From 1 November 2026, for an employee whose monthly pay is at least twice the national average gross monthly wage, the employment contract may also depart from the rules on termination, provided the employer’s and employee’s interests are balanced (DK Article 33(4), as in force from 1 November 2026). Until then, the rules on termination cannot be departed from even for such employees (DK Article 33(4)). This is done in the employment contract, not in the option agreement.

The only “stay or repay” agreement in the Labour Code is the one on reimbursing training costs (DK Article 37(1) and (4)). Where the employee, on their own initiative, studies for a bachelor’s or master’s degree or a formal vocational qualification and the employer pays all or at least half of the cost, the parties may agree that during the studies and for three years after them the employee may leave without good reason only after reimbursing the employer’s costs (DK Article 37(4)). So to the question “can the employee be obliged to work for at least a few years?” we answer: as a rule, no, but the option right can be linked to time served.

Third, the parties cannot make civil-law agreements on exercising rights and duties set by the Labour Code; labour law rules apply to such agreements (DK Article 33(5)). So do not use the option agreement to regulate what the Labour Code regulates, such as the notice period or penalties for leaving.

Together with the option, clients often ask us to prepare non-compete and confidentiality agreements. These are separate agreements between the parties to the employment contract (DK Article 38(1), DK Article 39(1)). We covered non-compete terms separately (in Lithuanian).

How to start

Send us the articles of association, the list of shareholders, the draft employment contract and a short description of what you have promised the employee: how many shares, after how long and for which results. We will suggest the right route and prepare the option agreement, the company decisions needed and the employment contract clauses.

Phone +370 5 212 1506, email info@linden.lt

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