Put and Call Option Agreements save Tax

Put and Call Option Agreements save Tax

Before explaining what a put and call option agreement is, we should firstly examine what a “contract” is.  In law a contract is formed when certain things happen. Two of the most important things that must happen is that there must be an offer by one party and an acceptance by the other.  Without this there is no contract.  There are other ingredients in a contract also such as:

  • intention to create a legal relationship
  • certainty of terms
  • consideration

For the purposes of this discussion the important two ingredients are:

  • offer and
  • acceptance

A put and call option agreement uses this basic contract law to ensure that a contract does not come into existence until some future time. This is a good example of how very old law can be used in innovative ways even today.

Generally a put and call option agreement works as follows:

I make an offer to you, to buy your property or any other asset but, I say that my offer is not capable of acceptance by you, until some future time.  Clearly we do not have a contract.  Although I have made an offer, you cannot accepted that offer.  It is quite possible that you might walk away from the offer and never accept it.  There is no obligation upon you to accept my offer to buy your property.

The offer can also be put the other way around.  In the above offer I offer to buy your home.  Instead the offer may be an offer from you, to sell your home.  Again the offer can be made in such a way that the offer cannot be accepted by me, the buyer, until some future time or upon some future event.

In each case the person receiving the offer can walk away.

The situation becomes interesting when the two offers are put together.  The effect then is that I have given an offers to buy and you have given an offer to sell.  Neither one of us can compel the others to accept the offer made. However both of us in a position at some future time to accept the received.  If the dates are arranged properly I know that if you do not accept my offer to buy then all is not lost, I can still make the deal happen as I can, if I want to, accept your offer to sell.  If therefore either one of us wants the deal to happen then it must.  A contract will only come into existence if one of the parties accepts the offer.

In other words, both of the parties are able at some point to force the deal.  If the first offer is not accepted then the second offer may be.  One offer is called the put option and the other is called the call option.

The put and call option is useful when for legal or taxation reasons a person wants to ensure that they can force a deal to occur but, do not want a contract to come into existence until some later time.  Why would this be important? A common example of this is the delaying of capital gains tax for one year, or the delaying of Duty.

If I were to sign a contract for the sale of my commercial property on 1 June 2012 then I would incur capital gains tax the 2012 financial year.  I do want to make sure that I can tie down the buyer who might change her mind if I wait another 30 days but, I made a large income this year and I would prefer to pay the capital gains tax next year, as I know that my income will be less next year and so the tax rate will be in a lower bracket.  The answer, is to use a put and call option that will bind the parties but delay the contract until some time after 30 June.

The term “Put and Call Option” is just a label. These options also go by other names.  Always beware of labels. You must ensure that the agreement has the desired effect, this is of course far more important than the label given to the document.

The drafting of these arrangements requires care and precision.

Riba Business Lawyers

Strength Through Knowledge

Franchising, Leasing, Acquisitions

Head office:  34 Duporth Avenue, Maroochydore, Sunshine Coast, Queensland.

Maroochydore:  07  54791488

Brisbane:  31032115

18 Comments
  • emmarose-company
    Posted at 08:02h, 30 November

    emmarose-company

    fanboosting, makeitscience,

  • buy-augmentin
    Posted at 08:22h, 03 December

    buy-augmentin

    atstarshoes, thequickanddirtyguides,

  • nike air max 90 qs city pack new york light beige chalk summit white gym red 813150 200
    Posted at 18:36h, 22 December

    nike air max 90 qs city pack new york light beige chalk summit white gym red 813150 200

    nike sb eric koston mid mcfly hover on martyadidas forum mid croc d茅fi jarr锚te jy gagnenike air foamposite one university blue white black super dealswomen nike free 2.0 running shoe pearl white

  • nike air trainer max 2 94 blue
    Posted at 19:10h, 01 January

    nike air trainer max 2 94 blue

    2018 design cheap nike air max 2017 white navy mens shoesmens nike air zoom fly 2 wolf grey flash lime pure platinum blackblack orange 2014 green flyknit air maxnike air jordan 4 retro mens shoes black white tour yellow

  • sklep buty damskie tkanina nike air huarache run w szary be
    Posted at 19:13h, 08 January

    sklep buty damskie tkanina nike air huarache run w szary be

    nike air max plus tn wei脽 blau kaufen mode schuhenike zoom kobe vii invisibility cloak sportschoenennike free socfly gradient official imagesblue uomo nike air vapor advantage clay scarpe da tennis mkzub1wkl

  • nike air max 1 mid sneakerboot lb qs black womens boots 685267 001
    Posted at 07:08h, 13 January

    nike air max 1 mid sneakerboot lb qs black womens boots 685267 001

    mens nike black white air max running shoes 095 honeycombnike after game white orange jordan men iinike free tr 7 mens488298 073 mens trainers black gamma blue nike air force 1 low

  • nike mercurialx vapor 12 pro ic soccer shoe wolf grey mens 10 womens 11.5
    Posted at 23:57h, 16 January

    nike mercurialx vapor 12 pro ic soccer shoe wolf grey mens 10 womens 11.5

    adidas alphabounce em undye mnike triple black flyknit racer launching 30th novemberwomens nike air max tailwind 8 running white pure platinum pink blast blacknike lebron 9 469764 400 best shopping black royal blue

  • nike air presto gpx
    Posted at 06:49h, 18 January

    nike air presto gpx

    nike air force 1 mid 07 blanche hommenike air max 2015 chaussures pour femme blanche noir orangenike air force 1 lo women grey pink butyadidas superstar black and white suede

  • adidas originals nmd r1 mujer
    Posted at 17:42h, 25 March

    adidas originals nmd r1 mujer

    nike air max 97 plus navy white ah8144 100 donnaair max bw homme taille 40air force 1 high sheed uomoasics gt 1000 6 ps herre

  • kobe 8
    Posted at 18:48h, 30 March

    kobe 8

    nike air trainer max 91 qs wolf grey white black schoenennike air jordan 13 black white gum gg 439358 021 01 schuhe herrenrihanna x puma bow sneaker herrenike air force 1 07 lv8 red croc schoenen

  • nike air max thea dark grey black volt print
    Posted at 07:27h, 11 April

    nike air max thea dark grey black volt print

    nike air max 1 ultra essential white white black wolf greynike free tr flyknit 3 womens black whitenike air max 1 fb dot packcheap real adidas nmd xr1 olive white

  • adidas stan smith mid shoes black
    Posted at 16:27h, 20 April

    adidas stan smith mid shoes black

    nike zoom all court ck qs chaussures de skate hommenike lunarcharge essential dam skoradidas eqt support 9317 bb1234nike air max 90 se mesh td les formateurs faible

  • nike roshe run colores
    Posted at 11:56h, 30 May

    nike roshe run colores

    asics gel lyte33 2 kids damskienike air force 1 low ultra robert kraft patriots hombrezapatillas nike womens court lite tennisnike air force 1 premium mid 07 hombre

  • nike mercurial vapor xii club mg dame sko
    Posted at 05:16h, 26 June

    nike mercurial vapor xii club mg dame sko

    under armour curry 4 all star for sale 2018 off white nikemens nike air max 90 2016 shoes034 blacknike air zoom pegasus 34 bleu grise blanche femme 880560 402nike jr bravata ii v ic chaussures de futsal mixte enfant

  • mens nike air vapormax plus kpu tpu black gold
    Posted at 20:11h, 04 July

    mens nike air vapormax plus kpu tpu black gold

    chaussures nike odyssey react hommenike air max plus tn ultra 898015 404 blauw zwart gym blauwnike air force 1 low aj0866 100 wei脽 wei脽 schwarznike legend react homme chaussures aa1625 002

  • estallido de dinero nike air max 90 mujer baratas alice oi97
    Posted at 21:10h, 12 July

    estallido de dinero nike air max 90 mujer baratas alice oi97

    homme nike 2011 blanc rouge air max airmax nike remise chaussureszapatos nike blancos outlet baratas espa帽a 2018chaussure nike air max 95 ultra noir rose blanc foot lockerscarpe nike air vibenna prem tg 44 cod 917539 700 9m us 10 uk 9 cm 28

  • cheap nike jordan westbrook 0 cool grey
    Posted at 01:41h, 18 July

    cheap nike jordan westbrook 0 cool grey

    nike phantom vision elite dynamic fit fg m忙nd skocheap mens nike air max 97 shoes black silver salenike air force one bianche bassenike air jordan 1 femme aj1 chaussure de basket noir jaune

  • nike wmns air max 90 cmft prm tape glow in the dark
    Posted at 20:12h, 19 July

    nike wmns air max 90 cmft prm tape glow in the dark

    elegir nike air max 90 kpu hombre negro claro azul zapatillas baratasnike rn free 2017 outlet baratas espa帽a 2018nike air max 2013 hommes chaussures bleu blancsneakers nike wmns air max 1 prm 454746 208 brutalzapas

Post A Comment