Would you like to give your employees a stake in the company’s results and are you considering implementing a free stock grant plan (AGA)? The AGA is an employee stock ownership program that allows you to grant shares without financial consideration, subject to a strict legal framework and tax implications that must be anticipated.
The objective is twofold:
The first step is to convene an extraordinary general meeting of shareholders to seek their approval. The issuance of bonus shares requires prior authorization from the extraordinary general meeting.
In accordance withArticle L225-197-1 I, paragraph 1, of the Commercial Code, the meeting has sole authority to “authorize the board of directors or the executive board to proceed, for the benefit of the company’s employees or certain categories thereof, with a free allocation of existing or to-be-issued shares.”
As specified in the aforementioned article, such resolutions may relate to shares already held by the company or to shares that will be issued in the near future as part of a capital increase.
The authorization granted by the EGM must, in particular, comply with:
Pursuant to Article L225-97-1 I, paragraph 9, of the Commercial Code, once authorization has been granted, the competent body (board of directors or executive board) must determine:
Regarding the award criteria, you do indeed have the option of making the award contingent on certain performance thresholds. These conditions may depend on the beneficiaries’ individual performance (number of hours worked, revenue generated, etc.) or on the company’s overall results (revenue, operating income, net income, etc.).
You can also add an attendance requirement to ensure that AGA recipients are present at the time of the grant. This option is particularly useful if you wish to retain “key personnel”—that is, employees or executives who play an indispensable role in the company’s smooth operation.
Once the AGM has approved the transfer, the beneficiaries have been identified, and the terms have been defined, you must formalize the transaction.
It is advisable to draft an allocation plan and/or a free share issuance deed summarizing the terms and criteria of the transaction.
It is also recommended to enter into a shareholders’ agreement. The purpose of this agreement is to govern the relationship between the majority shareholder and the new shareholders in order to anticipate any deadlock situations and ensure optimal cooperation.
In particular, it includes the following provisions:
As you can see, it is important to establish a legal framework for the free allocation of shares from the date of the transaction until the beneficiary’s departure.
Following allocation, final acquisition generally takes place in two stages: an acquisition period, followed by a holding period, if applicable.
According to Article L225-197-1 I, paragraph 6, of the Commercial Code, the vesting period is the time during which the beneficiary is not yet the full owner of the shares. The minimum duration is set by law and must be specified in the current version of the code.
Upon expiration of the vesting period, the company transfers the shares to the beneficiary, who then becomes a shareholder.
Following the vesting period is a holding period during which the grantees are required to retain the shares. During this time, the shares are non-transferable.
The Extraordinary General Meeting (EGM) is free to determine the minimum duration of the holding period. However, the Commercial Code stipulates that “the combined duration of the vesting and holding periods may not be less than two years”(Article L225-97-1 I, paragraphs 7 and 8).
Once these periods have elapsed, the beneficiary may freely dispose of their bonus shares and may therefore sell them if they so wish.
A stock option grant can be a highly effective tool for aligning interests and building loyalty, provided that three key areas are handled flawlessly: governance (special shareholders’ meeting + resolutions), documentation (plan and key provisions), and taxation.
At Equify, we offer to guide you through the entire process of granting free shares.
We assist you from the implementation of your grant plan (customizing your legal documentation and facilitating its electronic signature ) through to the execution of the grants and the management of the subsequent formalities.
Beyond the grant of free shares, there are other tools available to give your employees and executives a stake in the company’s equity, such as BSPCE options.