Tools for encouraging capital investment in the company, the subscription warrants for business creators (BSPCE) are very popular among small and medium-sized growing businesses. Introduced in 1998, these warrants are intended to encourage employee share ownership.

With a view to retaining and motivating talent, start-ups may indeed wish to allocate subscription warrants to their corporate officers or employees. This free allocation of warrants thus constitutes an addition to compensation.

Do you want to allocate BSPCE to your employees? Don't know how to do it or where to start? Discover in this article the 4 essential steps to implement and succeed your BSPCE allocation plan!

1 - Consult your shareholders

Let us remember that BSPCEs are subscription options giving their beneficiary the right to subscribe to shares within the issuing company. Thus, and in case of subscribing to the shares to which the BSPCEs give right, the employee can acquire the status of shareholder, as well as the rights attached to it (voting right or even right to dividends).

The decision to allocate is the exclusive competence of the company's extraordinary general meeting. Indeed, as article L228-92 of the Commercial Code reminds us, the decision to issue securities giving access to capital must first be authorised by the shareholders gathered in EGM.

The issue of BSPCE is only possible in companies by shares (SA, SAS, SCA).

Therefore, the allocation procedure should start with a consultation of your shareholders through an extraordinary general meeting or a written consultation (if your statutes allow it), in order to obtain their approval.

The shareholders' authorization must focus on several distinct points:

1. The issue of the BSPCE;
2. The issue of shares resulting from the exercise of the BSPCE and the resulting capital increase;
3. The renunciation by current shareholders to their preferential subscription right on the BSPCE (article L225-138 I of the Commercial Code).

In order to allow your shareholders to vote on these different points, you will need to establish two reports:

1️⃣ A report from the governing body (Article R225-113 of the Commercial Code) detailing:

• The reasons for the proposed capital increase and its maximum amount;
• The progress of the company's social affairs during the relevant fiscal year;
• The conditions for allocating the BSPCE;
• The time limit for exercising the warrants.

2️⃣ A special report from the auditor (CAC) (Article R225-115 of the Commercial Code) presenting his opinion on:

• The proposal to abolish the preferential right;
• The choice of elements for calculating the exercise price;
• The impact of the issue on the situation of the current holders of the company.

The shareholders' consultation is also an opportunity to vote for a delegation of authority to the management body for the implementation of the allocation plan.

This delegation can cover:

1. The characteristics of the BSPCE (subscription terms etc.);
2. The exercise price of the allocated subscription warrants;
3. The list of beneficiaries;
4. The shares allocated to each beneficiary.

Under Article L225-138 III of the Commercial Code, the issue must take place within 18 months from the decision of allocation taken at the Extraordinary General Meeting (EGM).

⚠️ If you have a delegation voted on, the governing body must present an additional report describing the final conditions of the operation at the next ordinary general meeting. This report must be certified by an auditor (CAC).

2 - Draft Your Template Documents

Once the delegation is approved, you need to focus on drafting the legal documentation related to the allocation of BSPCE.

To plan the allocation, three types of documents are necessary:

1️⃣ An allocation plan

Also called "Plan Rules" or "Terms and Conditions", this plan must detail the terms of the allocation and in particular:

• The characteristics of the BSPCE (type and number of underlying shares to which it entitles, validity period...);
• The exercise schedule;
• The plan in case of departure of the employee (resignation, dismissal or retirement for instance).

2️⃣ An allocation letter

If the allocation plan is common to all recipients of the plan, the allocation letter details the specific provisions for each beneficiary of the shares.

The letter notably mentions the quota allocated to the beneficiary as part of his allocation, the start date of acquisition, or the exercise price of the BSPCE.

3️⃣ A contractual commitment (or mini-pact)

In the event of the exercise of his BSPCE, the beneficiary becomes a shareholder of the company. It is therefore important that he adheres, at the time of allocation, to the provisions of the shareholders' agreement concluded between the founders and the company's investors.

This ensures the acceptance, by the beneficiary, of the terms negotiated with your investors (tag along, drag along, or preferential liquidation).

It is also common to provide in the mini-pact a promise of share transfer by the beneficiary in case of departure from the company. This allows the company to avoid, in the event of a conflictual departure, finding itself with a belligerent shareholder in its capitalization table.

Given the importance of these provisions, and the implications they can have on the shareholding of your company, it is strongly recommended that you be accompanied by legal counsel when drafting this documentation.

3. Create a List of Your BSPCE Beneficiaries

The next step in the allocation procedure is to create a list of share beneficiaries and determine the number of warrants they will be distributed.

This list must be established according to the allocation policy of the company. Indeed, while some companies choose to allocate BSPCE to all employees, others prefer to reserve allocation for a specific category of employees (top management, key persons, etc).

It is therefore important to keep in mind the motivations that led you to set up your allocation plan when you make such a decision and involve all decision-makers within the company in this reflection.

You must also position yourself regarding the quantities allocated: will they be established based on salary, type of position held or seniority?

Again, the answer will depend on your allocation policy and the objectives you have set for yourself.

4. Carry out your allocations

Once you have decided on the list of beneficiaries and quantities to be allocated, all that remains is to have each of your beneficiaries sign their legal documentation to formalize the allocation. The share subscription vouchers are finally distributed under the conditions provided for by the plan.

When you reach this stage, keep in mind that many employees have very little knowledge on the subject, and may not fully realize the magnitude of the opportunity being offered to them. It is therefore important for you to communicate with them to explain their rights as well as the conditions of the allocation.

You can then formalize this moment by gathering your employees to send a positive message and get them to adhere to your vision in order to ensure the growth of the company.

It is also conceivable to favor individual interviews with each of the beneficiaries.

To organize such communication, do not hesitate to involve your human resources manager, who due to his proximity to the employees and his experience, can be of great help!

And then?

Once your BSPCE allocations have been made, you must ensure the follow-up of the vesting, manage the exercise requests, and organize the departures of employees when there are any.

At Equify, we offer to accompany you throughout the BSPCE allocation process. Indeed, we assist you during:

• The organization of your allocation plan (organization of the BSPCE issuance modalities, personalized drafting of your legal documentation and electronic signature of it);
• The management of events that follow the allocation of the BSPCE (exercise and subscription of the underlying shares, departure, etc).

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