Do you want to involve your employees in the company's results and are you considering setting up a free share allocation plan? Discover the steps to ensure the success of your AGA!

A real tool for loyalty and motivation, the free allocation of shares, or AGA, allows you to involve your employees and corporate officers in the company's results. It is a mechanism of employee shareholding consisting in granting shares to employees, without financial consideration.

Open only to companies by shares (SA, SAS, SCA), this scheme encourages employees and managers to contribute to the development of the company. It is also an interesting solution to reward them otherwise than by the allocation of bonuses and bonuses.

Furthermore, AGAs allow beneficiaries to become shareholders of the company for free and to make a certain financial gain when reselling shares.

Do you want to assign free shares to your employees and/or corporate officers? We explain the procedure to follow!

1. Gather the shareholders in AGE

The first step is to gather the shareholders in extraordinary general meeting in order to consult them. The allocation of free shares indeed requires the prior authorization of the AGE.

In accordance with Article L225-197-1 I paragraph 1 of the commercial code, the assembly is solely competent to "authorize the board of directors or the executive board to proceed, for the benefit of members of the company's salaried staff or certain categories of them, with a free allocation of existing shares or to issue".

As specified in the aforementioned article, AGAs can bear on shares already held by the company or shares that will be soon issued as part of a capital increase.

The AGE's authorization must cover the following elements:

• Duration of the allocation's validity;
• Designation of beneficiaries;
• Minimum duration of the acquisition and retention period;
• Shareholders' waiver of their preferential subscription right in the event of issuing new shares;
• Percentage of share capital allocated.

Regarding this last point, the total quantity of shares allocated must not exceed 10% of the company's share capital. However, for an allocation benefiting the entire staff, this ceiling is raised to 30% of the share capital.

Finally, paragraph 4 of Article L225-197-1 of the Commercial Code specifies that the general meeting sets the period during which the authorization is valid. It adds that this period cannot exceed 38 months.

2. Identify the beneficiaries and set the conditions

Under article L225-97-1 I paragraph 9 of the Commercial Code, the board of directors or the management board determines:

• The identity of the beneficiaries of the AGA;
• The conditions of allocation;
• If necessary, the criteria for allocating shares.

Regarding the allocation criteria, you indeed have the possibility to condition it to certain performance thresholds. These conditions can depend on the individual performances of the beneficiaries (number of hours worked, turnover contributed, etc.) or on the overall results of the company (turnover, operating result, financial result...).

You can also add a presence condition to require the AGA beneficiaries to be present at the time of allocation. This modality is particularly interesting if you want to retain "key men", i.e. employees or managers playing an indispensable role in the smooth running of the company.

3. Draft the legal documents necessary for the allocation

Once the AGA is approved, the beneficiaries identified and the terms of allocation defined, you must formalize the operation.

Une fois l’AGA approuvée, les bénéficiaires identifiés et les modalités de l’attribution définies, vous devez formaliser l’opération. 

An allocation plan or an AGA issuance act

It is advisable to draft an allocation plan and/or an act of issuance of free share allocation summarizing the terms and criteria of the operation.

The document includes the information decided at the AGM, such as the identity of the beneficiaries, the duration of the allocation and holding period, the quota assigned to each of the beneficiaries, the conditions of the operation, etc. 

A shareholders' agreement

It is also recommended to conclude a shareholders' agreement. This agreement is intended to organize relations between the main shareholder and the new shareholders in order to anticipate any blocking situation and ensure optimal collaboration.

It includes the following clauses:

• Pre-emption and approval clause;
• Exclusion clause;
• Bad leaver clause forcing the shareholder to sell his shares in case of wrongful departure, etc.

As you can see, it is important to legally frame the free allocation of shares from the date of the operation until the exit of the beneficiary.

4. Carry out the allocations

Following the allocation of AGA (free shares), their benefit is acquired in two stages.

The acquisition period

According to article L225-197-1 I paragraph 6 of the commercial code, free shares are only definitively acquired by the beneficiaries after an acquisition period that cannot be less than 1 year.

During this period, the recipient has no shareholder rights (voting rights, right to information, financial rights, etc.) and only has a non-transferable claim right.

At the end of the acquisition period, the company transfers the shares to the beneficiary who then acquires the status of a shareholder.

The holding period

After the acquisition period comes a holding period during which the recipients are obliged to keep the shares. During this time, the shares are non-transferable.

The General Meeting of Shareholders is free to determine the minimum duration of the holding obligation. However, the commercial code stipulates that "the combined duration of the acquisition and holding periods cannot be less than two years" (article L225-97-1 I paragraphs 7 and 8).

Once these periods have elapsed, the beneficiary is free to enjoy his free shares and can therefore sell them if he wishes.

At Equify, we offer to accompany you throughout the process of allocating free shares.

We assist you in setting up your allocation plan (customizing your legal documentation and electronic signature of it), up to the completion of the allocations and the management of the formalities subsequent to it.

Beyond the allocation of free shares, there are other instruments to interest your employees and managers in the company's capital, such as BSPCE.

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