banner_ad

Similarity and Difference between 'Call Option' and 'Put Option'



Description of terms used in this post

Company X - a limited company

A - shareholder of X and a Call Option holder (Call Option right vested in A)

B - shareholder of X and a Put Option holder (Put Option right vested in B)

C/D/E - Other shareholders in X

Similarity and Difference between  Call Option  and  Put Option
  • CALL OPTION - A's right to call upon other shareholders to sell their shares to A. In other words, A can call upon/compel B/C/D/E to sell their shares to A. It is a right to buy other shareholder's shares.
  • PUT OPTION - B's right to put his/her/its shares on the table for sale. A/C/D/E will be compelled to buy A's shares in X.
  • SIMILARITY:
  1. These rights are granted to shareholders of a company under the shareholders'/option agreement/s
  2. They can be classified under the title 'exit rights'.
  3. In most cases, the shareholder who is granted these rights have the 'right/discretion' to exercise it and it is not an 'obligation' to exercise it. In simple terms, the holder of such a right can decide whether or not to exercise such a right.
    • Example: Under the shareholders/option agreement, A has a call option which he can exercise as long as he continues to be a shareholder in the company. A may or may not exercise it. A is not required/obligated/compelled to exercise this as per the terms of the agreement.
  4. In certain exceptional cases, however, in the agreement/s, these rights are triggered upon the happening of certain event/s e.g. failure to achieve some milestones laid down in the agreement. In these cases, such rights are to be exercised mandatorily.
    • Example: B (a shareholder of X) has a Put Option vested in him under the shareholders agreement. Vide the agreement, it is B's responsibility to ensure that X achieves the agreed sales target. If the sales target is not achieved then the Put Option right vested in him will get triggered and he will be forced to sell his shares to the other shareholders. Very often in these cases, the option gets exercised at a discounted price as compared to the normal agreed price, to act as a penalty for the non-compliance with the terms of the agreement.
     
  • DIFFERENCE:
    • Call Option: The person who has this right can buy shares held by other shareholders.
    • Put Option: The person who has this right can sell his/her/its shares to the other shareholders.
 

Notes:

  1. There can be various permutations and combinations in Call and Put options i.e. it may apply only to some shareholders and not all. A may have a call option only on the shares held by B and B can have a put option only for A i.e. if B exercises his/her/its put option then A alone will have to buy the shares held by B.
  2. Pricing mechanisms for options are captured in the shareholders/option agreement/s. Where foreign parties are involved, there are certain pricing and other guidelines laid down by RBI that have to be mandatorily complied with.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement




About the Author

corporates

Why Affluence Advisory for any Tax Compliance services? Affluence Advisory Pvt Ltdis a multi-disciplinary consulting and compliance firm that is managed by a specialized team of Chartered Accountants, Company Secretaries, Corporate Lawyers, and Other Professionals who are committed to providing a quality experience ... Read more


CCI Pro

Comments


Related Articles


Loading


Popular Articles





CCI Pro
Meet our CAclubindia PRO Members

Follow us
add to google news

CCI Articles

submit article


Company
Featured 02 May 2026
Senior Executive

hitesh chandwani & co

Pune

B.Com

View Details
Company
Featured 29 April 2026
Manager- Finance and Compliance

Naveen Fintech Pvt Ltd

Kolkata

CA Inter

View Details
Company
Featured 14 April 2026
GST CONSULTANT

Abhishek G Agrawal & Co.

Korba

CA Final

View Details
Company
Featured 13 April 2026
GST CONSULTANCY

Abhishek G Agrawal & Co.

Korba

CA Final

View Details
Company
Featured 28 March 2026
Accountant

Ashok Amol & Associates

New Delhi

B.Com

View Details
Company
Featured 28 March 2026
CA Final

Ashok Amol & Associates

New Delhi

CA Final

View Details
Company
Featured ARTICLESHIP 19 March 2026
Article Assistant

Gupta Sachdeva & Co. Chartered Accountants

New Delhi

CA Final

View Details
Company
Featured 14 March 2026
Associate CA

N N V Satish&co

Hyderabad

CA

View Details