Changes in the world of work, particularly in technology companies, have accelerated the growth of freelancing and umbrella companies. These changes allow companies to recruit experts from around the world without the traditional constraints associated with permanent employment. The umbrella company model, for example, offers unique flexibility by allowing companies to hire international talent without opening local subsidiaries, while providing workers with the benefits of employee status. This new dynamic has revolutionized traditional employment models.

Unfortunately, traditional employee stock ownership programs (such as BSPCE or free shares), used to align interests and maintain long-term team engagement, cannot be used for freelancers and workers under an umbrella company arrangement, as they are reserved for the company’s direct employees and, under certain conditions, for employees of subsidiaries.

This situation poses a significant challenge: how can freelancers and employees under a payroll agency arrangement be included in employee stock ownership programs ? This is where Stock Subscription Warrants (BSA) come into play.

Why BSA?

Employee stock ownership plans(such as BSPCE and free shares) generally aim to strengthen long-term team engagement, but they are based on eligibility requirements that do not always cover freelancers, consultants, or employees working through an umbrella company.

Stock Subscription Warrants (BSA) can, in certain structures, offer greater flexibility because they can be offered to individuals who are not necessarily employees of the company.

In practical terms, a BSA is an instrument that may grant its holder the right to subscribe for shares at a price and under terms set in advance. The holder’s exact rights depend on the terms of issuance and the articles of incorporation, and one should avoid making generalizations (e.g., rights in the event of capital transactions, anti-dilution clauses, treatment in the event of a sale, etc.). 

Strategies for Allocating Stock Option Warrants

To date, there is no established benchmark for BSA allocations to freelancers, but key factors can serve as a guide for making your allocations, such as:

• the level of expertise of the freelancer ;
• their level of involvement in the company’s projects;
• potential impact on the company’s growth;
• market value of the services provided.

Furthermore, the compensation level must be considered in light of:

• employee stock ownership plan established for the company’s employees (if one exists)
• % of the total capital that the company has decided to allocate to its employees and third parties

It makes sense to consider along-term strategy to retain freelancers, given the lack of long-term commitment inherent in their status. Indeed, an allocation alone will not be enough to maintain their interest in the company over the long term. That is why it is beneficial to establish rules forperiodic re llocations, commonly referred to as “refreshers,” to ensure continuity. By reallocating stock options at strategically chosen times based on vesting schedules, a company can increase its ability to retain talent over the long term.

The number of stock options allocated must be attractive enough to make the holder feel truly invested in the company’s success.

Terms of Practice

Determining the exercise conditions for stock option warrants (BSA) offered to freelancers and employees under an umbrella company arrangement is crucial to maximizing their effectiveness as a tool for motivation and employee retention. It is essential to define vesting periods—often spread over four years with gradual vesting—to secure their long-term commitment. These periods allow freelancers and foreign employees to gradually become eligible to exercise the stock options, thereby encouraging continued involvement in the company’s projects.

Furthermore, the exercise terms must clearly stipulate the consequences in the event of early departure, which often result in the loss of the right to exercise unvested stock options.

Finally, the exercise price of the stock options must be set in a transparent and fair manner, taking into account the exercise price of any employee stock ownership plans in place at the company to ensure that the interests of freelancers and employees under an umbrella company are aligned with those of the company’s other employees.

Tax and Regulatory Considerations

1. Tax Treatment of BSA

BSA shares are not subject to any specific tax regime. In France,the flat tax rate of 31.4% applies without any deduction based on the length of ownership.

It iscrucial to consult a tax advisor to understand the tax implications of BSA grants abroad. This consultation is all the more important given that tax regulations can vary considerably from one country to another. It is important to note that the initial investment required of beneficiaries under the BSA program may represent a barrier for some freelancers or employees, particularly those early in their careers or who do not have funds available to invest.

2. Determination of the Subscription Price

It is common practice to set the subscription price of stock option warrants at 10% of their exercise price. However, it is important to note that this approach has not yet been validated by case law.

In principle, this subscription price must reflect the market value (“fair market value”) of the BSA. Setting a subscription price below this value could lead a tax authority to consider that there would then be a “taxable” benefit in any difference between this market value and the subscription price.

To set this subscription price in line with fair market value, it will be necessary to take into account all exercise conditions, including vesting periods and cases of early expiration in the event of departure.

3. Foreign Exchange Control

When granting stock options abroad, it is essential to take into account local foreign exchange control regulations. Companies must ensure they comply with all local regulations to avoid any legal or regulatory issues. This may include restrictions on the transfer of funds related to financial securities or specific reporting requirements.

It is strongly recommended to consult a local tax or legal advisor to understand the tax and regulatory implications of granting stock options abroad.

4. Securities Law

Offering financial instruments for subscription constitutes, by its very nature, a public offering. As such, this type of offering is subject to a number of regulatory requirements under securities law, including the filing of a prospectus containing detailed information about the offering, the associated risks, and the financial terms. This document must be approved by the relevant financial regulatory authority (such as the AMF in France).

There are, however, certain exceptions, notably if the company limits the BSA offering to a maximum of 150 people or to “qualified investors,” that is, individuals or entities with the necessary knowledge and expertise to understand the risks associated with this type of investment.

It is therefore crucial for companies to verify the number of beneficiaries before proceeding with the allocation of BSA shares to avoid falling under the stricter regulations governing public offerings.

Conclusion

Granting stock options to freelancers and employees under an umbrella company is an innovative and effective strategy for motivating and retaining these talented individuals. By offering an opportunity to participate in the company’s equity, stock options allow to align their interests with those of the organization, thereby boosting their commitment and personal investment. However, it is crucial to clearly define the terms and conditions for granting and exercising these options to maximize the benefits while minimizing the risks.

By incorporating BSA into their talent retention strategy, companies can not only attract and retain the best freelancers and foreign employees, but also strengthen their competitive position in the global market. BSAs are more than just a financial tool; they are a driver of motivation, engagement, and shared growth.

The future of work is global and flexible. Companies that know how to leverage the benefits of stock options to motivate and retain their international talent will be the ones that thrive in this new environment. By adopting innovative strategies such as granting stock options, companies can not only meet their employees’ expectations but also prepare to tackle future challenges with confidence and determination.

Sources

1. Article L228-91 of the Commercial Code