The stock option plan is a compensation tool available to corporations. Under this plan, the company offers all or some of its employees the opportunity to subscribe to or acquire shares at a price set in advance.
The goal? To align the interests of employees and certain corporate officers with the company’s capital and results. The plan also aims to foster loyalty and encourage involvement in the company’s growth.
Established by the“ ” (Law No. 70-1322 of December 31, 1970, on the granting of stock subscription or purchase options to company employees), stock options are an employee stock ownership mechanism, similar to BSPCEs, BSAs, or AGAs.
This program is part of a strategic compensation approach designed to encourage employees and executives to take an active role in the company’s growth and to align their actions with that goal.
A stock purchase or subscription option involves a company offering all or some of its employees the right to purchase or subscribe to securities (shares) at a price determined at the time of grant. The option holder is thus free to exercise or not exercise the option depending on changes in the value of the shares.
The legal framework for stock options is governed by specific provisionsof theFrenchCommercial Code( ) Articles L225-177 et seq. and R225-137 et seq.
All corporations, whether publicly traded or not, may grant stock options to their employees and, in certain cases, to corporate officers. More specifically, SASs, SAs, and SCAs may utilize this form of employee share ownership.
Furthermore,Article 80 III of the General Tax Code (CGI) sets forth specific rules when the company’s registered office is located abroad and the beneficiaries work in France.
In an unlisted company, stock options may be granted to two categories of individuals.
1️⃣ Employees
Pursuant to Article L225-180 of the Commercial Code, anunlisted company may grant stock options to its own employees, as well as to the employees of its subsidiaries (companies in which it directly or indirectly holds at least 10% of the capital or voting rights).
However, unlike publicly traded companies, it cannot grant stock options to employees of its parent or sister companies.
2️⃣ Corporate Officers
Certain executives may also be eligible, provided they hold an effective management position:
Members of the supervisory board and board members, however, are not eligible.
💡 An exception applies to corporate officers involved in the formation or acquisition of a company: even without a management role, they may be granted stock options for the two years following registration.
According to the provisions of Article L225-182 of the Commercial Code, the granting of stock options is subject to a two-part cap:
The decision to grant stock options is, in principle, made by the extraordinary general meeting (EGM), particularly to authorize the plan and set certain conditions.
Subsequently, the operational terms are generally set by the competent body (the board of directors or the executive board, as applicable): number of options, beneficiaries, exercise price, exercise conditions, timeline, etc.
Once the stock options have been granted, the beneficiaries may exercise the option within the specified time frame. Upon exercise, they acquire the shares and may realize a gain known as an “option exercise gain” if the value of the shares has increased between the grant and the exercise. They may then sell the shares or defer the sale depending on their chosen strategy.
The underlying shares are generally non-transferable until the option is exercised, in accordance withArticle L225-183 of the French Commercial Code.
Stock options provide employees—and, in certain cases, corporate officers—with the opportunity to acquire an equity stake at a predetermined price. For the program to be effective and secure, it is essential to establish clear guidelines regarding governance, the scope of beneficiaries, applicable limits, and the plan’s documentation.
To get started, begin by reviewing the laws applicable to your situation and having the plan’s structure (beneficiaries, timeline, vesting conditions) approved, then formalize everything in clear documentation.