A study conducted in 2021 by Equify in partnership with FLIT Network (French Lawyers in Tech), Fed Legal, and AndCo demonstrates the adoption of employee share ownership by French Tech companies: 90% of participants indicate they have already implemented an employee share ownership scheme or plan to do so.
Among them, 91.3% of respondents indicated a preference for BSPCE. Other mechanisms (BSA, options, or even free shares) seem to be used most often as a supplement, when recourse to BSPCE is not possible.
The Warrants for the subscription of business creator shares are thus the employee share ownership mechanism most used in practice. Why such a success? What is the difference with other mechanisms? We answer all your questions.
Encouraging employee performance, retaining them and attracting new talent are important challenges for any company director. To assist entrepreneurs, French law provides them with numerous incentive instruments, such as:
As diverse as they are, these mechanisms have the same vocation: to develop employee share ownership. On the one hand, they help to retain employees and encourage them to contribute to the development of the company. On the other hand, they are an excellent way to attract and retain essential talent for the company's growth.
Despite their common vocation, BSPCEs operate quite differently from other employee shareholding mechanisms.
The creators' share subscription warrant (BSPCE) offers the holder the right to subscribe shares at a predetermined or predeterminable price. The beneficiary receives the warrant for free and is then free to exercise it, and therefore acquire shares, or not to exercise it, depending on the company's financial valuation. On the contrary, in the case of the issuance of share subscription warrants (BSA), the beneficiary is required to purchase the warrant to obtain the right to subscribe shares whose price will have been determined in advance.
Regulated by the articles L225-197-1 and following of the Commercial Code, the free allocation of shares (AGA) involves the beneficiary receiving shares from the allocating company for free. The beneficiary, however, only becomes the owner of the shares after an acquisition period and a holding period whose cumulative total is at least 2 years.
As for stock options, whose legal regime is regulated by the articles L225-177 and following of the Commercial Code, they allow the beneficiary of the option to subscribe or acquire shares of the company for a predetermined period and at a price defined on the day the option is granted.
The implementation of AGA and stock options is however costly for the company, which is why young companies prefer to turn to BSPCEs.
Only joint-stock companies can resort to employee shareholding mechanisms. These incentive tools thus concern simplified joint-stock companies (SAS), partnerships limited by shares (SCA), or public limited companies (SA).
💡 Other forms of companies, such as LLCs, cannot use these mechanisms to reward their employees.
The issuance of BSPCEs is however reserved for certain joint-stock companies only. The legislator has indeed restricted the categories of companies eligible for the issuance of these warrants due to their very advantageous regime.
Therefore, only companies meeting the following conditions can grant BSPCEs:
1️⃣ Be a joint-stock company;
2️⃣ Be registered with the RCS for at least 15 years;
3️⃣ Be subject to corporation tax in France;
4️⃣ Be not listed on a regulated market or have a market capitalization of less than 150 million euros;
5️⃣ Be continuously held, by at least 25% by natural persons or by legal persons themselves held by natural persons for at least 75%;
6️⃣ Not have been created as part of a concentration, restructuring, expansion or takeover of activity.
BSPCEs were initially reserved for employees, or some of them, and managers subject to the employee tax regime. The Macron Law of August 6, 2015, and then the PACTE Law of May 22, 2019 subsequently expanded the scope of the warrants. Now, a company can also grant BSPCEs to employees and managers of its subsidiaries, as well as board members and members of the supervisory board of the company.
The beneficiaries of stock options or free shares can be members of the salaried staff and corporate officers. However, the allocation of options as well as free shares is limited by a double ceiling provided for in article L225-182 of the Commercial Code for stock options and in article L225-197-1 of the same code for AGAs.
Finally, BSAs can be granted to a larger number of beneficiaries: to employees, corporate officers as well as to third parties. This is what differentiates this employee shareholding mechanism from BSPCEs which are an incentive scheme specifically dedicated to the company's collaborators.
Whether it's BSPCE, free shares, BSA, or stock options, their issuance must be previously authorized by the shareholders' meeting gathered in the General Meeting. It is during this assembly that the allocation rules are organized.
Within the framework of a BSPCE issuance plan, the exercise price is defined in advance. This presents a significant financial interest for the beneficiary. Indeed, in case of financial valuation of the issuing company, the latter is certain to make a capital gain when selling his shares.
As for the BSA, the exercise price is also defined in advance. However, unlike the BSPCE, the beneficiary only receives the BSA when the subscription price of the coupon has been paid.
Regarding AGA, the allocation of shares is subject to allocation conditions (an acquisition period and a holding period) whose cumulative duration cannot be less than two years. Thus, the beneficiary only becomes the owner of the shares at the end of an acquisition period of one year, and can only dispose of the shares after a holding period of at least one year. On the other hand, the definitive acquisition of shares is not subject to the payment of an exercise price.
Finally, the allocation of stock options also requires the establishment of an issuance plan specifying the list of beneficiaries, the number of options allocated, the exercise price, the time allowed to exercise the option, the allocation conditions, etc.
Within the framework of the issuance of BSPCE, the issuing company is not liable for any employer contribution. The allocation of these coupons indeed has no tax consequences for the company.
This is one of the main advantages of the BSPCE compared to other employee shareholding schemes. Indeed, the issuance of free shares and stock options, on the contrary, leads to employer contributions of 20% to 30%.
The beneficiaries of the BSPCE are not subject to any taxation on the acquisition capital gain. They are only taxed on the capital gain from the sale. According to the article 163 bis G of the General Tax Code, coupons allocated from January 1, 2018, are taxed as follows:
On the other hand, in the context of the allocation of free shares, the beneficiaries are taxed both on the acquisition capital gain and on the sale capital gain.
Like the AGA, the beneficiaries of subscription options are taxed at the progressive scale of income tax in the category of wages and salaries for the acquisition gain, and at the rate of 12.8%, except for the progressive scale option.
BSPCEs are an interesting employee shareholding scheme for both the beneficiaries and the issuing company.
The financial benefit is indeed obvious for the beneficiaries as the exercise price of the underlying shares is set in advance, and cannot be changed. In case of an increase in the value of the share, they make a certain capital gain.
For the issuing company, the issuance of BSPCEs is much less costly than the allocation of free shares or even subscription options, which explains its success with young companies.
Finally, the tax regime of the BSPCEs is one of the most favorable in Europe, both for the company that assigns them and the beneficiaries.
Are you convinced by the BSPCEs and want to implement them within your company? At Equify, we accompany you throughout the procedure, from the design of your allocation plan (vesting, exercise procedures...), to the drafting and signing of legal documents and the allocation to selected beneficiaries.
Would you like to know more about the features offered by Equify? Don't hesitate to ask us for a demo by clicking here.