Attracting and retaining talent is a fundamental step in a company’s development.
To achieve this, there are various equity incentive solutions available: BSPCE, stock options, bonus shares (AGA), and BSA. These employee stock ownership plans help engage company stakeholders more deeply in the company’s growth.
Stock subscription warrants (BSA) offer their holders the opportunity to purchase one or more shares at a set price during a fixed period, thereby increasing their stake in the company or acquiring an equity interest.
What are BSA? Who is eligible for them? What are their benefits? Let’s take a closer look.
A stock subscription warrant is a financial instrument as defined inArticle L211-1 of the French Monetary and Financ , and more specifically a security (Article L211-2 of the French Monetary and Financial Code), issued by a corporation.
The legal framework governing the issuance of stock subscription warrants is thus governed by the rules applicable to securities (Article L228-91 et seq. of the Commercial Code).
This warrant grants its holder the right to acquire one or more shares at a specified exercise price and up to a specified expiration date. As such, it is an option on existing or future shares. In fact, the holder of a BSA is under no obligation to purchase these shares. The shares are only allocated to the holder upon subscription and payment of the exercise price.
BSA, BSPCE, and bonus share allocations (AGA) are all mechanisms designed to give beneficiaries a stake in the company’s share capital. Despite their common purpose, these employee stock ownership mechanisms have major differences.
Introduced by the 2005 Finance Act, the allocation of bonus shares allows the recipient to become a shareholder of the company at no cost. Under a BSA, the holder becomes a shareholder only if they decide to purchase the shares at a preferential price.
As for business founder share subscription warrants (BSPCE), they may only be granted to employees and corporate officers of the company. Recipients of BSA warrants may include both company stakeholders and third parties.
The issuance of stock subscription warrants is limited to corporations: SA, SAS, and SCA, whether listed or unlisted. This is indeed statedin Article L228-91, paragraph 1, of the French Commercial Code :“ joint-stockcompaniesmay issue securities granting access to the capital or entitling the holder to the allocation of debt securities.”
Furthermore, pursuant to Article L228-92, paragraph 1, of the aforementioned Code, the extraordinary general meeting of shareholders has sole authority to authorize the issuance of stock subscription warrants (BSAs).
A distinctive feature of BSA is that they are not exclusively reserved for the company’s employees and executives. Third parties outside the company may also be eligible for these warrants.
BSA warrants may thus be granted, in particular, to:
The exact terms (price, schedule, clauses, and any attendance or performance requirements) must be specified in the plan documentation.
Stock option warrants come with an exercise period during which the beneficiary can acquire the shares at a predetermined price. The exercise of the warrants may also be subject to performance or attendance requirements.
BSA holders have a certain period of time (ranging from a few months to several years) to exercise their rights and subscribe for shares. There is no general legal requirement regarding this matter. (Articles L228-91 and L228-92 of the Commercial Code)
In principle, the length of the exercise period is determined based on the company’s objectives: raising funds, rewarding employees, etc. Generally speaking, when the warrants are granted to foster loyalty and motivate beneficiaries, the exercise period spans several years to provide greater flexibility.
Like the exercise period, the exercise price is determined at the company’s discretion.
When the stock option is intended to reward company stakeholders, the price may be set based on the company’s valuation. The stock option holder will exercise the option only if they believe the company’s valuation has exceeded the exercise price.
In any case, the exercise price must be consistent with the actual value of the issuing company; otherwise, there is a risk of reclassification depending on the circumstances.
As with BSPCE options, the exercise of BSA warrants may be subject to certain requirements:
The BSA mechanism offers advantages for both the issuing company and the beneficiary.
Stock option warrants allow the company to reward, motivate, and retain employees, executives, and certain partners. The goal is to encourage performance and participation in the company’s growth.
Stock option warrants allow the holder to become a shareholder of the company without having to immediately make a contribution equivalent to the acquisition cost “at market price.”
Stock option warrants are a flexible tool for providing access to equity, particularly when the company wishes to include beneficiaries beyond just employees and corporate officers.
To move forward without unnecessary risk, the key is to clearly define the terms (price, timeline, conditions, clauses) and to validate the structure in light of the company’s situation and that of the beneficiaries.