Person eligible to exercise: Overview, definition, and example
What is a person eligible to exercise?
A person eligible to exercise refers to an individual or entity that is authorized to take action or use a right or option that is granted to them under a specific agreement or legal arrangement. This term is commonly used in contexts such as stock options, employee benefits, or legal rights, where the person or party involved is granted the ability to "exercise" their rights, such as purchasing stock or taking certain legal actions, based on predefined conditions or timelines.
For example, in the case of stock options, the "person eligible to exercise" would be the individual who holds the option and has the right to purchase company shares at a predetermined price.
Why is a person eligible to exercise important?
The concept of a person eligible to exercise is important because it establishes the eligibility criteria and the conditions under which certain rights or options can be utilized. It defines who can take specific actions, such as exercising a stock option, voting in an election, or invoking a legal right. By clearly outlining eligibility, businesses and individuals can ensure compliance with agreements, avoid disputes, and provide clarity about who has the authority to act under the terms of a contract or arrangement.
For companies, understanding who is eligible to exercise options or rights helps manage stock-based compensation, employee benefits, and ensures that actions are taken in accordance with established rules.
Understanding person eligible to exercise through an example
Imagine an employee who has been granted stock options as part of their compensation package. The stock options allow the employee to purchase 1,000 shares of company stock at $10 per share, but they can only "exercise" the options after a certain vesting period. After the vesting period, the employee becomes a "person eligible to exercise" the stock options, meaning they can now purchase the stock at the agreed-upon price, even if the market price is higher.
In another example, a shareholder in a corporation may be eligible to exercise voting rights during an annual meeting. The person eligible to exercise their voting rights would be a shareholder who holds shares on the record date, and they would be able to vote on company matters such as the election of board members or approval of corporate policies.
An example of a person eligible to exercise clause
Here’s how a clause related to a person eligible to exercise might look in a stock option agreement:
"The Employee shall become eligible to exercise the stock options granted under this Agreement after the completion of a 3-year vesting period, at which time they may exercise up to 100% of the options vested as of that date. The Employee is the only person eligible to exercise these options, subject to the terms and conditions outlined herein."
Conclusion
A person eligible to exercise is someone who is granted specific rights or options under a legal or contractual arrangement, and who meets the criteria to take action based on those rights. Whether in the context of stock options, voting rights, or other legal agreements, defining eligibility is crucial for ensuring that the right individuals can take action at the right time. Businesses benefit from clearly outlining eligibility criteria to avoid confusion and ensure that actions are carried out according to the terms of the agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.