A preferred device for employee share ownership by startups, BSPCEs allow employees to be associated with the company's share capital under optimized legal and tax conditions. They are a means of attracting and retaining the necessary talent for the company's development.
Their success with young companies is explained by the simplicity of their implementation, as well as by their favorable taxation. But what about for employees?
In reality, this mechanism is often misunderstood by employees who perceive it as complex. However, a good understanding, by the beneficiaries, of the operation and issues of the BSPCE device is essential to the success of the allocation plan.
The BSPCE system was introduced by the law of December 30, 1997, for finance in 1998 and codified in the article 163 bis G of the General Tax Code. It allows young startups to interest their employees in the company's capital by allocating share subscription warrants. These warrants give the holder the right to subscribe to shares at a price determined on the day of their allocation.
In other words, BSPCEs are a way for employees to acquire shares in the company for which they work. They thus obtain the status of a shareholder and can exercise the rights attached to this status. This allows them to be more involved in the startup's development and to participate in its success.
The interest of BSPCEs for employees lies, moreover, in the fact that the exercise price of the warrants is predefined, and cannot be modified later. Thus, in case of an increase in the value of the underlying shares between the time of allocation and the exercise of the warrant, the beneficiaries will have acquired the shares at a price lower than their market value and will realize a capital gain in case of sale.
BSPCEs are allocated free of charge to employees according to the policy defined by the issuing company. In application of the article L228-94 of the Commercial Code, the issuance contract determines the conditions and modalities of allocation of the warrants:
While the subscription warrants are allocated free of charge to employees, their exercise is conditioned on the payment of a price, called the exercise price, or strike price. It corresponds to the amount at which the underlying share can be acquired by the employee. This is the price that the latter will have to pay to exercise his BSPCE, i.e., to buy the share.
The strike price is determined in advance by the issuing company in the allocation plan. It normally corresponds to the value of the company's share on the day of allocation.
Once the contractual documents have been signed by the beneficiary employee, the price can no longer be modified.
Employees cannot exercise their BSPCEs immediately. The warrants are indeed acquired progressively according to the conditions set in the exercise schedule.
The objectives of this acquisition period vary from one company to another:
In practice, the vesting period is generally 4 years. This means that employees can exercise all of their BSPCEs 4 years after the allocation or their arrival in the company.
After one year of seniority, employees generally receive the first tranche representing 25% of the total subscription warrants granted. This is called the "cliff" period. However, if they leave the company before the end of this one-year period, they will not be able to exercise any of the allocated warrants.
The BSPCE allocation plan sometimes provides for an acceleration clause. This clause allows for anticipating the exercise of the warrants in case of a change in control of the company. In practical terms, this means that employees will be able to exercise all of their subscription warrants even though the vesting has not yet ended.
To exercise their BSPCEs, employees must complete and sign a subscription form that was given to them at the time of allocation. They also have to pay the exercise price provided in the plan regulations to acquire the underlying securities.
However, this can represent an investment for employees. To finance the exercise of their warrants, they can resort to:
Once these steps are completed, the employee becomes a shareholder and thus enters the company's capitalization table.
There are 3 liquidity events that can lead employees to sell shares resulting from the exercise of their BSPCEs:
Outside these cases, the issuing company can also provide liquidity windows that can be activated when personal events occur in the employees' lives (acquisition of a main residence, for example).
Finally, as shareholders of the company, employees have the right to sell their shares directly. However, the direct sale of shares is strictly regulated by the shareholders' agreement, in order to protect the share capital. In addition, in many cases, other shareholders have a right of preemption (priority right to buy the shares) in order to avoid the entry of an unwanted third party into the capital.