The stock options scheme, or share options, is a relevant remuneration tool available to joint-stock companies. Indeed, it's about the company offering all or some of the employees the opportunity to subscribe or acquire shares at a price predetermined in advance.

The goal? To involve and interest employees and managers in the company's capital and results, to retain them and motivate them to contribute to the development of the structure.

Stock options: what are they?

Established by the law no. 70-1322 of December 31, 1970 relating to the opening of options for subscription or purchase of shares for the benefit of company staff, stock options are an employee shareholding mechanism, like BSPCE, BSA or even AGA.

This scheme is part of a remunerative and strategic approach whose purpose is to encourage employees and managers to get involved in the company's growth and to guide their action in this direction.

The option to buy or subscribe shares involves a company offering all or part of the employees the opportunity to buy or subscribe shares (shares) at a price determined at the time of allocation. The option holder is thus free to exercise or not exercise the option depending on the evolution of the share value.

The legal regime of stock options is framed by specific provisions in the articles L225-177 and following and R225-137 and following of the Commercial Code.

Which companies can grant stock options? 

All joint-stock companies, listed or not, can grant stock options to their employees and corporate officers. More concretely, simplified joint-stock companies (SAS), public limited companies (SA) or even partnership limited by shares (SCA) can resort to this form of employee shareholding.

In addition, the law, and more specifically Article 80 III of the CGI, allows companies whose head office is abroad to grant share options to employees working in a French subsidiary or parent company.

Who can benefit from this?

Employees and corporate officers of a joint-stock company can benefit from stock options.

Employees

In application of the article L225-180 of the Commercial Code, a joint-stock company can grant options on securities to the benefit of:

• the company's employees or to some of them;
• the employees of companies or economic interest groups (EIG) holding, directly or indirectly, at least 10% of the capital or voting rights of the company granting the options (parent companies);
• the employees of companies or economic interest groups (EIG) of which at least 10% of the capital or voting rights are held, directly or indirectly, by the company granting the options (subsidiary companies);
• the employees of companies or EIGs of which at least 50% of the capital or voting rights are held, directly or indirectly, by a company itself holding, directly or indirectly, at least 50% of the capital of the company granting the options (sister companies).

💡However, a non-listed company can only grant stock options to its employees and corporate officers, as well as to the employees of its subsidiaries. Excluded are the employees and corporate officers of its parent or sister companies, as well as the corporate officers of its subsidiaries.

Corporate officers

In accordance with the article L225-185 of the Commercial Code, corporate officers invested with a management function can receive options giving the right to subscribe to shares. These leaders are the following:

• The chairman of the board of directors;
• The CEO;
• The Deputy CEOs;
• Members of the management board;
• The manager of a joint-stock company.

💡Members of the supervisory board and directors of the board of directors cannot benefit from stock options.

By exception, individual corporate officers participating in the establishment or takeover of a company can benefit from options on securities, even if they do not perform a management function. However, these options can only be granted for a period of 2 years from the registration of the company.

Within what limits are securities options granted?

According to the provisions of the article L225-182 of the Commercial Code, the allocation of stock options is framed by a double ceiling:

• An individual limit concerning beneficiaries: employees and corporate officers who hold more than 10% of the company's share capital cannot be granted options;
• A global limit concerning the issuing company: the total number of options granted by the company and not yet exercised by their beneficiaries cannot give the right to subscribe to a number of shares exceeding one third of the share capital, by virtue of the article R225-13 of the Commercial Code.

How does the allocation of stock options work?

The decision to grant purchase or subscription options for shares to the company's staff members belongs exclusively to the extraordinary general meeting (EGM), as reminded by article L225-177 paragraph 1 of the Commercial Code. It is also up to it to determine the period during which the options can be granted. However, this period cannot exceed 38 months.

The conditions under which stock options are granted are set by the board of directors or the management board. Indeed, it is up to these bodies to determine the number of options granted, the beneficiaries, the exercise price, the conditions for exercising the options, etc.

Once the stock options are allocated, the beneficiaries are free to exercise the option within the exercise period set by the EGM. In case of exercising the option, i.e., the acquisition of shares, they can realize a gain, called the option exercise gain. The holders can then resell the shares on the day of the exercise, or defer the sale if they deem it appropriate.

💡The underlying shares are inalienable until the option is exercised, in accordance with article L225-183 paragraph 2 of the Commercial Code.

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