French law provides numerous incentive solutions for young companies to retain collaborators (Free Allocation of Shares, stock options...). Among these tools, the issuance of share subscription warrants for business creators (BSPCE) is one of the most common.

For a good reason, BSPCEs constitute an excellent tool for startups wishing to attract and retain new talents, and motivate them to actively participate in the company's growth during its development phase.

They thus represent today an indispensable part of the overall remuneration policy of startups or growing SMEs.

But more concretely, what is a BSPCE? Which companies are eligible? And who can benefit from it?

This article will allow you to understand everything about the functioning and scope of BSPCE.

What is a BSPCE?

Intended for young structures, the share subscription warrants for business creators are designed to develop employee shareholding. They indeed encourage collaborators to participate and support the company's development. A real loyalty tool, these warrants are part of a strategic approach to ensure the sustainability of the activity.

These are stock options granting the beneficiary the right to subscribe to titles representing the capital of the issuing company at a price determined at the time of the award of the warrants. The subscription of underlying shares thus allows the beneficiary to exercise the rights attached to the status of a shareholder.

What are its characteristics?

The BSPCE have certain characteristics that make them a unique tool for interest in the company's share capital:

• The bonds are awarded free of charge;
• They allow the beneficiaries to subscribe to securities corresponding to a share of the share capital at a price determined immutably on the day of their award;
• The bonds are intuitu personae and are therefore inalienable;
• They allow their beneficiary to benefit from a favorable tax regime: unlike other devices such as free shares, only the capital gains from the sale of the shares resulting from the bonds are taxed.
  

💡BSPCE cannot be included in a share savings plan (PEA), or a company savings plan (PEE)

How do BSPCEs work?

The BSPCE are awarded free of charge by the issuing company to a beneficiary. The terms of their award must be organized: type and number of underlying shares (usually one bond corresponds to one ordinary share), acquisition or vesting schedule (the most common being divided linearly over 4 years) and exercise price.

As soon as a bond is acquired by the beneficiary, it becomes exercisable, that is, the beneficiary can subscribe to the underlying share at the price set at the time of the award and exercise the social rights attached to the acquired share.

The interest of the BSPCE for the beneficiary lies in the fact that the price is determined in advance. Indeed, in case of valuation of the issuing company between the date of award and the exercise of the bond, the beneficiary will have acquired a title at a price lower than the market price, which will allow him to realize a capital gain in case of resale.

The vesting schedule

The "vesting schedule" or "acquisition period" corresponds to the time it takes for the BSPCE to be definitively acquired by the beneficiary and become exercisable.

It is linked to the duration of the beneficiary's presence within the issuing company. It can, more rarely, be conditioned by individual or collective performance criteria.

Too short an acquisition has no effect on the beneficiary's loyalty. Conversely, a too long acquisition period can be discouraging.

Market practices thus converge on a total period of 4 years from the award of the BSPCE or the arrival of the beneficiary in the company.

It is also common to provide for a "cliff" period of one year, after which the beneficiary can benefit from the first tranche (usually amounting to 25% of the total granted).

To avoid threshold effects, companies generally opt for monthly or quarterly acquisition over the following 3 years.

The exercise price

The exercise price is the amount at which the underlying share (share to which the BSPCE gives right) can be acquired.

For a long time, companies that had raised funds in the 6 months prior to the issuance of the bonds had to set an exercise price at least equal to the price of the shares issued during this last financing.

However, since the PACTE law of May 22, 2019, the underlying shares can be subscribed at a price lower than the one retained during the last fundraising, that is, with a discount.

To implement such a discount, the issuing company must nevertheless justify that the rights attached to these shares are not equivalent to those of the shares subscribed by the investors during the last fundraising, so as not to disadvantage them. The loss of the economic value of the securities must thus be established.

Which companies can grant BSPCE?

As the BSPCE regime is very advantageous, the legislator has chosen to restrict the use of this scheme to a specific category of companies.

To be able to issue and assign BSPCEs, a company must meet the following conditions:

1️⃣ Be a share company (public limited company, simplified joint-stock company, and partnership limited by shares), in accordance with article 163 bis G of the tax code. Other forms of companies, namely LLCs, cannot resort to this scheme to reward their employees.

2️⃣ Be registered in the RCS (Trade and Companies Register) for less than 15 years.

3️⃣ Be continuously held, at least 25%, by individuals. This ownership can be direct, or indirect (i.e., through a holding company, itself held at least 75% by individuals).

4️⃣ Be subject, in France, to the IS (Corporate Tax).

Since the 2020 finance law, foreign companies can, under certain conditions, issue and assign BSPCEs. To do this, the following two conditions must be met:

• The company must be established in an EU (European Union) member state, or in a state or territory that has concluded a specific tax agreement with France;
• The company must also be subject in the state where its head office is located to a tax equivalent to the IS in France. 

However, the legislator has provided an exception for listed companies whose market capitalization is less than 150 million euros.

6️⃣ Finally, are excluded from the BSPCE regime, companies that have been created as part of a concentration, restructuring, expansion, or business takeover.

The Macron law of August 6, 2015 has relaxed this last condition by adding a few exceptions.

Who can benefit from it?

Traditionally, the BSPCE regime was reserved for employees of the issuing company, as well as its corporate officers (president, general manager...), subject to the employee tax regime.

Since 2015, a company can also assign BSPCEs to employees and managers of its subsidiaries, provided that:

1️⃣ The issuing company holds at least 75% of the capital or voting rights of the subsidiary;

2️⃣ The subsidiary meets all the conditions mentioned above, excluding those related to capital ownership. 

The Pacte law has further extended the scope of application of the BSPCEs, which can now also be assigned to directors of the issuing company, as well as those of its subsidiaries.