Are you looking to motivate and retain your employees and senior executives? Do you want to involve them more in the company’s growth? Stock options are an attractive equity-based incentive solution for achieving this.
As a true employee stock ownership program, stock options—or securities options—were introduced by Law No. 70-1322 of December 31, 1970, regarding the granting of stock subscription or purchase options to company employees.
These are stock subscription or purchase options granted by a corporation (SA, SAS, SCA) that allow beneficiaries to subscribe to or purchase shares at a predetermined price.
Once the option is exercised, the beneficiaries become shareholders of the company and enjoy the rights associated with that status. They also have the option to sell their shares to realize a capital gain if the share price has increased since the option was exercised.
Here is the procedure to follow to grant stock options to your employees and executives!
Implementing a stock option plan requires prior approval from the shareholders, who must convene an extraordinary general meeting (EGM).
In accordance with Article L225-177 of the French Commercial Code, the EGM may authorize “the board of directors or the executive board to grant, for the benefit of the company’s employees or certain among them, options entitling them to subscribe for shares.”
In this case, the meeting delegates to the governing body the responsibility for implementing the grant of stock options.
The meeting determines the period during which its authorization is valid. This period may not exceed 38 months.
The authorization covers the following:
Once these points have been approved, the meeting must establish the following terms and conditions for the grant:
If authority is delegated tothe company’s governing body, the latter shall determine all grant conditions that were not established by the shareholders at the EGM. In this regard, it shall specify:
💡 A subscription option allows the beneficiary to purchase new shares as part of a capital increase. A purchase option allows the beneficiary to purchase existing shares—that is, shares previously issued by the company.
The management body may decide to grant stock options to employees. Pursuant toArticle L225-180 of the Commercial Code, it may grant call or subscription options to all or only certain members of the workforce.
Employees of companies or economic interest groups (GIE) that hold, directly or indirectly, at least 10% of the capital or voting rights of the company granting the options may also be eligible for stock options.
In addition to employees, corporate officers may receive stock options provided they hold a management position, in accordance withArticle L225-185 of the French Commercial Code.
The following individuals may therefore be granted options:
Furthermore, the governing body must not disregard the limits imposed by Article L225-182 of the Commercial Code when determining the terms and conditions of the grant. In fact, employees and corporate officers holding more than 10% of the company’s share capital may not be granted stock options. Furthermore, the total number of options granted may not entitle the holder to purchase or subscribe for shares exceeding one-third of the company’s share capital.
Once the grant conditions have been determined, it is essential to formalize the process. To do so, a“ ” (Regulations for the Stock Option Grant Plan) must be drafted. It sets forth and details the terms established by the shareholders’ meeting and the governing body, such as the characteristics of the stock options (type of option, number of underlying shares, etc.) and the vesting schedule.
Drafting a“ ” a contractual agreement or mini-shareholder agreement, is also strongly recommended. It ensures that the beneficiary, as a future shareholder of the company, adheres to the provisions of the agreement entered into by the current shareholders. The goal is to avoid any deadlock situations and thereby ensure the smooth operation of the company.
Given the stakes and the potential consequences that granting stock options may have on youremployee share , and more broadly on the long-term viability of your company, we encourage you to seek legal counsel to draft this documentation.
To formalize the grant, the company sends all of the documentation mentioned above to the employee.
With the grant, the company thereby grants the beneficiary the right to subscribe for or purchase a certain number of shares at a price determined in advance.
This subscription is often subject to vesting conditions, upon fulfillment of which the beneficiary may exercise the option.
💡 Shares resulting from granted options are non-transferable until the option is exercised, in accordance withArticle L225-183, paragraph 2, of the French Commercial Code.
Stock options align employees, executives, and shareholders around a common goal: value creation. To implement them effectively, the entire process must be secured: authorization at an extraordinary general meeting (EGM), delegation of authority and parameters, plan regulations, grant, and rigorous monitoring through to exercise and sale.
At Equify, we support you through every step of the stock option grant process, from organizing your grant plan to managing events following the grant.
Legifrance — Commercial Code, Art. L.225-177 (EGM authorization + maximum term of 38 months)
Legifrance — Commercial Code, Art. L.225-178 (waiver of preemptive rights)
Legifrance — Commercial Code, Art. L.225-180 (employee beneficiaries)
Legifrance — Commercial Code, Art. L.225-182 (limits / caps)
Legifrance — Commercial Code, Art. L.225-183 (exercise period / non-transferability)
Legifrance — Commercial Code, Art. L.225-185 (corporate officers)
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