Introduction Equity holders Overview Section 174: Company A’s proportion if option arrangements in place
701.This section requires an alternative calculation if an equity holder’s rights (either to profits or to assets in a winding up) are affected by option arrangements. It is based on paragraph 5B of Schedule 18 to ICTA.
702.There is a distinction between:
	an option which affects the rights carried by shares or securities; and
	an option which leads to the acquisition of shares or securities.
703.In the first case, such an option would fall within section 171. This section deals with the second case, which was considered in J Sainsbury plc v O’Connor (1991), 64 TC 208 CA(2).
704.Subsection (1) provides a method statement. It requires a calculation for every permutation of rights that may exist if options are exercised so that shares or securities in the company are acquired. The permutation that gives the lowest proportion is the “alternative proportion”.
705.Subsection (2) is the rule that the alternative proportion is used if it is lower than the proportion that would otherwise be used.