Key points
- A BSA (share subscription warrant, bon de souscription d’actions) is a financial instrument that allows its holder to subscribe for shares at a predetermined price during a fixed period.
- If the share value exceeds the predetermined price at the time of exercise, the holder makes a potential profit.
- In a société anonyme (French public limited company), the issue of BSA is authorised by the extraordinary general meeting, under Articles L. 228-91 and L. 228-92 of the French Commercial Code (Code de commerce).
- For the company, BSA offer financial flexibility and a way to retain talent, with no repayment of principal.
- The main drawback remains dilution of the share capital, because exercising BSA creates new shares.
- This article distinguishes BSA from BSPCE (French start-up share warrants), which are intended for different beneficiaries.
Are you looking to raise funds or retain your key teams? BSA (share subscription warrants, bons de souscription d’actions) can meet these strategic needs. As a company director or investor, you face complex choices. You need to optimise your financial structure while keeping control of your share capital. Share dilution, issue conditions and the legal and tax implications are all parameters to master. To find out more, see our page incentives lawyer.
To find out more: BSA advisors lawyer (in French).
At Hashtag Avocats, we understand your concerns. You are looking for flexible solutions to finance your growth without risking excessive dilution. You also want to motivate your employees with incentives aligned with the company’s objectives. This article explains how BSA work, their advantages and their risks, and sets out the legal and tax framework. With a suitable strategy, BSA can become a powerful lever for your success.
What is a BSA share warrant?
A BSA (share subscription warrant) is a security giving access to the share capital (Article L. 228-91 of the French Commercial Code (Code de commerce) (in French)), issued by a joint-stock company, which allows its holder to subscribe for shares at a predetermined price during a fixed period. This financial instrument offers attractive opportunities for investors and employees alike.
How a BSA works
The way share subscription warrants work is relatively simple. When a company issues a BSA, the holder has the right to buy shares in that same company at a price set in advance and during a specified period. If the share value exceeds this predetermined price when the right is exercised, the holder makes a potential profit.
This therefore involves a measured risk but with a potentially significant reward. This very nature of BSA allows companies to motivate and retain their talent while offering an attractive alternative source of financing.
Issuing BSA and increasing the share capital
The issue of BSA is often part of a broader capital increase strategy. When a holder exercises the right to buy, they buy new shares issued by the company. This has the effect of increasing the company’s share capital.
From a legal standpoint, in a société anonyme, the issue of BSA is authorised by the extraordinary general meeting of shareholders, in accordance with Article L. 228-92 of the Commercial Code (in French); where it is reserved for named persons, Article L. 225-138 also applies. The meeting rules on the report of the board of directors or the management board (directoire) and on the special report of the statutory auditor.
Advantages and disadvantages of BSA
For companies
Share subscription warrants offer several notable advantages for companies:
- Financial flexibility: BSA make it possible to raise funds without an immediate share issue. A relevant example could be the BSA-AIR, particularly suited to start-ups.
- Attracting talent: they are a way to motivate and retain key employees.
- No repayment: unlike bonds, BSA do not involve repayment of principal.
Nevertheless, a few drawbacks should be considered:
- Dilution of the share capital: exercising BSA creates new shares, thereby diluting the stake of existing shareholders. Certain contractual aspects should be taken into account, such as shareholders’ agreement clauses in a fundraising.
- Uncertain valuations: fluctuating share prices can make long-term financial planning difficult.
For investors and employees
For holders, whether investors or employees, the advantages are as follows:
- Profit opportunity: buying shares at a price below their market value generates a potentially substantial profit.
- Commitment to the company: employees who hold BSA are more inclined to contribute actively to the company’s success.
On the other hand, there are also risks and limitations:
- Risk of loss: if the share price falls, the BSA loses its value.
- Fixed period: holders must exercise their right within a defined, often limited, time window.
BSA vs BSPCE: what is the difference?
BSA should not be confused with BSPCE (French start-up share warrants, bons de souscription de parts de créateur d’entreprise).
| Criterion | BSA | BSPCE |
|---|---|---|
| Beneficiaries | Open to external investors and employees | Reserved essentially for employees and corporate officers |
| Tax | Disposal gain in principle subject to the capital gains regime, except for a gain acquired in return for the holder’s duties | Favourable tax regime if the conditions of Article 163 bis G of the French Tax Code (CGI) (in French) are met |
| Purpose | Purchase of future shares | Mainly used to attract and retain talent |
Legal and tax considerations
Structuring a BSA programme requires an in-depth understanding of the applicable legal and tax regulations.
Legal aspects
The issue of BSA must follow the rules laid down by the Commercial Code, in particular:
- Approval by the competent bodies: in a société anonyme, prior authorisation by the extraordinary general meeting.
- Reports: the meeting rules on the report of the board of directors or the management board and on the special report of the statutory auditor.
- Documentation: a prospectus approved by the French financial markets authority (Autorité des marchés financiers, AMF) in the event of an offer to the public or admission to a regulated market, unless an exemption under Regulation (EU) 2017/1129 applies.
Tax aspects
From a tax perspective, the treatment of BSA depends on the holder’s situation and the conditions of acquisition:
- For companies, the tax treatment of the costs of issuing BSA is assessed case by case.
- For holders, the gain on the disposal of BSA in principle falls under the capital gains regime for securities; it is, however, taxed as employment income (traitements et salaires) where it is acquired in return for the duties performed (Conseil d’État, the French Supreme Administrative Court, 13 July 2021, No. 435452).
These various elements call for appropriate advice from a tax lawyer to make the tax treatment of the issue and exercise of BSA legally sound.
Steps to set up a BSA programme
Carrying out an issue of BSA requires a structured approach. Here are the main steps to consider:
- Preliminary study: analyse the company’s financial and strategic needs.
- Legal consultation: tailored legal advice to align the issue with the regulatory framework.
- General meeting: proposal and approval of the BSA by the shareholders.
- Drafting the documents: preparation of the board’s and the statutory auditor’s reports, followed by the publication formalities.
- Internal communication: a clear explanation to the beneficiaries of how BSA work and of their advantages.
- Ongoing monitoring: once the BSA are issued, rigorous monitoring of the exercise processes and any necessary adjustments.
Share subscription warrants are an attractive financial instrument for various economic players, whether for fundraising or for motivating employees. As their legal and tax framework is specific, dedicated advice makes their implementation legally sound.
With good preparation and a strategic approach, BSA can be a tool for growth and retention.
