Key points
- BSPCE, BSA and AGA are the three main incentive tools used by French start-ups, each with its own rationale, beneficiaries and tax effects.
- BSPCE allow holders to subscribe for shares at a fixed price; they are reserved for joint-stock companies subject to corporate income tax, less than fifteen years old, that meet shareholding conditions and, if listed, market capitalisation conditions.
- BSPCE beneficiaries are employees, corporate officers taxed under the employee tax regime and members of the board of directors or supervisory board; the exercise gain is taxed at 12.8%, or at 30% where the holder has less than three years’ service.
- BSA work like BSPCE but without their eligibility conditions or their favourable tax regime, and are aimed at consultants, business angels or service providers.
- AGA grant shares free of charge after a vesting period of at least one year, within a statutory cap expressed as a percentage of the share capital.
- The choice depends on the company’s eligibility and the beneficiary’s profile; an error in the issue conditions can invalidate the mechanism or its tax regime.
BSPCE (French start-up share warrants, bons de souscription de parts de créateur d’entreprise), share subscription warrants (bons de souscription d’actions, BSA) and free shares (attributions gratuites d’actions, AGA) are the three main incentive tools used by French start-ups to give their employees, corporate officers and partners a stake in value creation. They follow different rationales, are aimed at different beneficiaries and produce distinct tax and social security effects.
Choosing the right mechanism depends on the company’s situation, the beneficiary’s profile and the objectives pursued.
BSPCE (French start-up share warrants)
BSPCE are warrants that allow their holders to subscribe for shares in the company at a price fixed when they are granted. They are reserved for companies that meet the conditions of Article 163 bis G of the French Tax Code (Code général des impôts) (in French): joint-stock companies (SA, SAS) liable to corporate income tax in France, registered less than fifteen years ago, unlisted or with a market capitalisation below €150 million, whose capital is held directly and continuously as to at least 15% by individuals or by legal entities themselves held as to at least 75% by individuals, and which were not created as part of a business combination, restructuring, extension or takeover of pre-existing activities.
Eligible beneficiaries are employees, corporate officers taxed under the employee tax regime and members of the board of directors, the supervisory board or the equivalent statutory body in an SAS. Beneficiaries make a gain when they exercise their warrants and the share value exceeds the exercise price. This gain is taxed at the flat rate of 12.8%, increased to 30% where the beneficiary has worked in the company for less than three years at the date the shares are sold.
BSA (share subscription warrants)
BSA work on the same principle as BSPCE (a right to subscribe for shares at a fixed price), but they are not subject to the BSPCE eligibility conditions: any joint-stock company can issue them (Article L. 228-91 of the French Commercial Code (Code de commerce)). On the other hand, they do not benefit from the favourable BSPCE tax regime.
BSA are generally aimed at people who cannot benefit from BSPCE: consultants, members of the strategic committee, business angel investors, strategic service providers. They make it possible to give third parties a stake in the company’s value creation without granting them a tax advantage similar to that of BSPCE.
AGA (free shares)
Free share awards make it possible to grant existing or new shares free of charge to designated beneficiaries, after a vesting period of at least one year and, where applicable, a holding period, the combined duration of the two periods not being less than two years (Article L. 225-197-1 of the Commercial Code (in French)). AGA can be set up by joint-stock companies, whatever the age of the company, within the limit of 15% of the share capital in principle, and cannot benefit an employee or corporate officer holding more than 10% of the share capital.
The tax and social security regime applicable to AGA differs from that of BSPCE and BSA. The vesting gain falls under Article 80 quaterdecies of the French Tax Code (in French): within an annual limit of €300,000, it is taxed as salary after a 50% allowance; above that, it follows the ordinary rules for wages and salaries. The company also pays a 30% employer contribution on the value of the shares when they vest (Article L. 137-13 of the French Social Security Code (Code de la sécurité sociale) (in French)), except for the exemption provided for certain companies that have not distributed dividends. This regime has been amended several times, which makes it essential to check the rules in force before any implementation.
BSPCE, BSA or free shares: how to choose
The decision depends on several factors. If the company is eligible for BSPCE and the beneficiary falls within the categories covered by the law, BSPCE are generally the tool of first choice because of their tax regime. If the company is not eligible or the beneficiary does not fall within those categories, BSA or AGA are the alternatives to consider depending on the objectives.
Also worth reading: dedicated assistance with BSA for advisors (in French).
Setting up these mechanisms requires a decision of the general meeting, the drafting of grant rules, the definition of the vesting conditions and the preparation of information documents for beneficiaries. An error in the issue conditions can invalidate the mechanism or cause the loss of the benefit of the tax regime.
See our dedicated pages on our BSPCE lawyer, BSA lawyer and free shares (AGA) lawyer (in French) services to find out more about each mechanism. Our start-up lawyer page covers our overall assistance on these matters.
