#BSA AIR Lawyer in France

Your situation and your risks

You want to finance your company quickly, before you can set its valuation on good terms. The BSA AIR often meets this need. The investor pays in funds now. In return, they receive warrants that will allow them to subscribe for new shares in a later round. The number of shares they will be entitled to depends on a formula set in the issue agreement.

The acronym AIR stands for “accord d’investissement rapide” (rapid investment agreement). It is a French market practice, inspired by the American SAFE. No statute provides a specific regime for it: legally, it is a share subscription warrant (BSA, bon de souscription d’actions). It is therefore governed by the rules of the French Commercial Code (Code de commerce) that apply to securities giving access to the share capital. Our page BSA AIR: definition explains how it works in general.

The difficulties lie mainly in drafting and procedure. An ambiguous calculation formula or the absence of an exercise deadline create disputes. So does silence on what happens to the warrants if the company is sold. An issue decided by a body without authority weakens the whole transaction. The company’s legal form must also be checked before anything is signed.

The legal framework for issuing a BSA AIR

Only companies limited by shares may issue securities giving access to the share capital (Article L. 228-91 of the Commercial Code (in French)). An SARL (French limited liability company) therefore cannot issue BSA AIR. Its issues of securities are limited to registered bonds, subject to conditions (Article L. 223-11 of the Commercial Code (in French)). An SARL that wishes to use this instrument must first convert, usually into an SAS (simplified joint-stock company).

The issue is authorised by the extraordinary general meeting. The meeting decides on the basis of the report of the board of directors or of the management board and the special report of the statutory auditor (Article L. 228-92 of the Commercial Code (in French)). The meeting may delegate its authority under the conditions of Articles L. 225-129 et seq. (in French) In an SAS, these rules apply by cross-reference (Article L. 227-1 (in French)). The decision is taken collectively by the shareholders, under the conditions set by the articles of association (Article L. 227-9 (in French)).

Shareholders have a preferential right to subscribe for the warrants themselves. The issue decision, however, entails a waiver of their preferential right to the shares to which the warrants give entitlement (Article L. 225-132 (in French)). To reserve the warrants for an investor, the meeting cancels the preferential right in that investor’s favour (Article L. 225-138 (in French)). The named beneficiary does not take part in the vote. The issue must then be completed within eighteen months of that decision.

• Exercise: the capital increase is definitively completed by the mere exercise of the rights and the corresponding payments (Article L. 225-149 (in French)).
• Recording: the management body records the shares created and amends the articles of association. It does so at the latest at its first meeting following the end of the financial year.
• Protection of warrant holders: from the issue onwards, the company can no longer change its legal form, its corporate purpose or the allocation of its profits. The issue agreement or the law may, however, authorise it to do so (Article L. 228-98 (in French)).

How we can help

We assist you from the preliminary checks through to the exercise of the warrants. Our role covers both drafting and procedure:

• checking the legal form and the articles of association, and organising the conversion of the company if needed;
• drafting the issue agreement: formula for determining the number of shares, trigger events, exercise deadline, treatment of the warrants if the company is sold or dissolved before the round;
• preparing the management body’s report, the resolutions cancelling the preferential right and the shareholders’ decision;
• organising the exercise: subscription forms, recording of the capital increase, updating of the articles of association and formalities;
• aligning the warrants with the shareholders’ agreement and preparing their treatment in the next round.

BSA are also used to give advisers or partners a stake in the share capital. These uses follow a different logic, presented on our BSA advisors (in French) and employee and manager incentives pages.

What is at stake for you

The BSA AIR postpones the valuation question to the next round. Dilution is not removed: it is deferred, and its extent depends on the negotiated formula. We recommend that you model the effect of the warrants on your capitalisation table under several valuation scenarios. This modelling informs the negotiation of each parameter.

A clear issue agreement also makes the work of next-round investors easier, as they will review the outstanding warrants. Every situation is different: the choice between a BSA AIR and an immediate capital increase depends on your timetable and on the parties you are dealing with.

Every situation is different: the information on this page is general and does not replace legal advice tailored to your case. The firm makes no promise of outcome; it commits to the means it deploys.