Employee leaving with BSPCE: good/bad leaver clauses, exercise window and procedures to follow when an employee exits.
The aim of the Macron Law of August 6, 2015, reforming employee share ownership, was to revitalize employee profit-sharing schemes involving company equity, such as the mechanism for entrepreneur share subscription warrants (BSPCE).
BSPCEs are, in fact, a retention tool designed to encourage all employees to remain with the company and contribute to its growth. This participatory management tool is intended for high-growth startups incorporated as joint-stock companies.
The granting of subscription warrants and the ability to exercise them are therefore naturally contingent on the employee’s continued employment with the company.
Consequently, the termination of the employment contract and the employee’s departure have direct consequences on the definitive vesting of the shares resulting from the BSPCE granted to the departing employee.
This is why the parameters of this program must be carefully designed and thought through to avoid disappointments or even disputes. The possibility of a shareholder-employee leaving the company must therefore be anticipated when drafting the terms and conditions for granting stock options.
Generally speaking, BSPCE grant plans stipulate that these warrants may only be exercised once they have been fully vested by the beneficiary.
This vesting occurs in installments according to a predefined vesting schedule. The longer the employee remains with the company, the more BSPCE they vest.
If the employee leaves the company, the main vesting condition (employment with the company) is no longer met, and vesting is therefore suspended.
Consequently, BSPCEs issued but not vested as of the date of departure generally lapse, in accordance with the plan’s provisions.
Example: Jean receives 400 BSPCE on May 1, 2018. His grant plan provides for a 4-year vesting schedule, with 25% vesting at the end of each year of service with the company.
On June 15, 2021, Jean leaves the issuing company. The vesting of the granted warrants is then automatically suspended as of that date:
➡️ By that date, he will have vested 50% of his BSPCE warrants (= 200);
➡️ The 200 unvested BSPCE are forfeited.
When the warrants are issued, their validity period is generally set at 10 years. However, most grant plans provide for a reduction in the exercise period—or even its termination—in the event of the employee’s departure. This allows the company to manage the end of the employment relationship and protect itself against future uncertainties.
Thus, at the end of the exercise period specified in the plan, any unexercised BSPCE options automatically expire, even before the end of the originally specified validity period.
As for the length of the exercise period granted in the event of departure, short periods (for example, a few months) are common, often with adjustments in the event of death or disability. This varies significantly depending on the plan.
It is up to the competent body (as determined by the company’s governance structure) to establish the exercise conditions at the time the grant is made (Article 163 bis G of the General Tax Code).
In the interest of fairness toward their employees, some companies adjust the exercise periods. One approach is to offer a post-departure exercise period equivalent to the validated vesting period. Thus, if an employee leaves the company 3 years after being granted BSPCE warrants, they have a 3-year period starting from their departure to exercise the warrants and acquire shares. This practice must be confirmed as consistent with your documentation (plan, grant decisions, agreement).
It is important to keep in mind that many plans include flexibility clauses, allowing management to grant departing employees more favorable terms. Thus, in the event of the termination of an employee’s employment contract, you may negotiate more flexible terms if you believe the conditions set forth in the plan are too strict.
Companies may also include an acceleration clause, which allows the beneficiary to accelerate the vesting of a portion of their unvested BSPCEs at the time of departure. The exact scope—including the quantity, circumstances, and governance procedures—must be explicitly stated in the plan.
Following their departure, and provided the applicable deadlines are met, the employee may choose to exercise their vested BSPCE options.
To help you manage this situation, here is a list of steps to follow:
1️⃣ Receive an exercise form signed by the beneficiary and verify that the corresponding exercise price has been paid;
2️⃣ Have the capital increase resulting from the issuance of shares to the beneficiary approved by the competent governing body (board of directors, executive board, or, if applicable, the chairman) and update the articles of incorporation.
3️⃣ Publish a notice in a legal gazette (JAL) within one month of the signing of the resolution approving the capital increase;
4️⃣ Finally, complete the formalities related to your capital increase with the court clerk’s office.
When resulting from the implementation of an employee stock ownership plan, the increase in share capital is governed by Articles L225-17 and L225-150 of the Commercial Code.
To best manage an employee’s departure, your shareholder agreement can outline the terms of their exit. It is common to specify the financial terms of the employee-shareholder’s departure, such as the conditions for the sale of the shares they hold.
Many agreements include a buyback commitment for the departing employee’s shares in favor of all or some of the company’s shareholders.
These sale or buyback provisions may treat departing employee-shareholders differently depending on whether they are “good leavers” or “bad leavers.” This affects the value of the shares at the time of resale.
The “good leaver” clause is intended to reward employees who have met their objectives by allowing them to sell their shares at a favorable price. In contrast, the “bad leaver” clause provides for an unfavorable price, such as a price equal to the purchase price, with no capital gain. It may apply to an employee who has committed a serious or gross violation, but not exclusively.
The Commercial Chamber of the Court of Cassation has ruled that buyback clauses at a fixed price are valid under certain conditions, and their scope must be assessed on a case-by-case basis in light of the exact wording of the clause and the context (Court of Cassation, Commercial Chamber, June 7, 2016, 14-17.978).
If your shareholders’ agreement includes a promise to repurchase company shares, be sure to notify the shareholders of the employee’s departure so that they may exercise the option and repurchase the employee’s shares, in accordance with the prescribed deadlines and formalities.
As you can see, the departure of BSPCE beneficiaries can quickly become problematic in a company with a significant employee shareholder base.
The departure of an employee who is a BSPCE beneficiary is managed first by reviewing the documentation (plan, resolutions, agreement), then by applying the vesting and exercise rules, and finally by ensuring that the exercise formalities and any subsequent exit from the company’s capital are properly handled.
If you want to avoid disputes, the most effective approach is to plan ahead: establish clear rules, provide precise definitions of departure scenarios, set consistent deadlines, and implement an internal process for handling exercise requests.
Court of Cassation, Civil Division, Commercial Chamber, June 7, 2016
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