Everything you need to know about BSPCE

BSPCE = Bons de Souscription de Parts de Créateur d'Entreprise.

It is an option that gives the right to buy shares in the company later at today's price and subject to certain conditions.

BSPCE are sometimes better known by their English name: stock options.

This takes place in 5 stages: grant, allocation, vesting, exercise and sale.

1. Grant: the general meeting approves the grant of a pool of BSPCE and delegates authority to the chairman (or board of directors) to allocate them.

2. Example: the general meeting authorises the grant of 1,200 BSPCE giving the right to 1,200 shares in total (representing 8% of the capital) and delegates to the chairman (or board of directors) the task of allocating them and defining their terms

3. Allocation of BSPCE by the chairman (or board of directors), who decides:

   • the identity of the beneficiary the sales director

   • the number of BSPCE allocated to them 1/3 of the pool (i.e. 400 BSPCE)

   • the exercise price €250 / share (corresponding to the valuation at the last funding round)

   • the vesting 1-year cliff then 1/4 vesting each year for 4 years (i.e. 100 BSPCE per year)

   • the exercise conditions dual condition of presence and performance

   • the exercise terms 10-year exercise period.

4. Vesting of all or part of the BSPCE.

5. All BSPCE have vested in year 5: the beneficiary has the right to acquire 400 shares in the company.

6. Exercise of BSPCE by capital increase and acquisition of the shares by the beneficiary.

7. Capital increase of the company by creation of 400 shares subscribed for by the beneficiary at an exercise price (strike) of €250 / share and signing of the mini-pact.

8. Sale of the shares by the beneficiary.

9. The beneficiary leaves the company, sells the 400 shares and realises a capital gain.

Only companies meeting the following criteria can grant BSPCE:

• Sociétés anonymes (SA) and sociétés par actions simplifiées (SAS)

• Registered in France for less than 15 years

• Subject to French corporation tax (impôt sur les sociétés, IS)

• Not listed on a stock exchange

• If the company was created as part of a concentration, restructuring, extension or takeover of pre-existing activities, all companies taking part in the transaction must meet the conditions required to grant BSPCE, it being specified that the transaction does not reset the age of the participating companies;

• The capital must be held, directly and continuously since the company's creation, for at least 25% by natural persons, or by legal entities with their registered office in France or the European Union which are themselves directly held for at least 75% of their capital by natural persons

Those eligible are:

• Employees

• Company officers (président, directeur général, directeur général délégué) who are treated as employees

• Directors

Those not eligible are:

• Freelancers

• Consultants

Note that BSPCE cannot be granted to a holding company or held within a PEA

Attracting talent

Top talent are more likely to join a company that offers them BSPCE.

They provide additional remuneration and a way to give employees a stake in the business by letting them share in the value created.

Employees simply gain the right to acquire shares at a preferential price — invaluable for young companies that cannot afford to hire talent at market rate.

Retaining talent

Vesting is a powerful deterrent to employees looking elsewhere.

They will have an incentive to stay with the company until they have vested all their shares. With BSPCE, employees feel like shareholders in the company.

For some people, this is a powerful psychological driver that multiplies their productivity and encourages performance.

To motivate talent

If one day you sell your company or take it public, your employees will benefit too.

The subscription price for the shares is set when the warrants are issued, not when they are exercised. As a result, the more the company's value increases between the time these warrants are granted and the time the beneficiary sells the underlying shares, the greater the capital gain realised.

Ultimately, BSPCEs strike a balance between the employer's need to retain key employees and the opportunity for those employees to benefit from value creation.

Startups typically set aside a pool of 8% of the capital up to Series B.

In later growth stages, this pool can typically rise to 15%, sometimes a little more, including BSPCEs already granted and those still available for grant.

There is no fixed rule. Some companies choose to grant them to all employees. Others grant them only to certain key employees.

It is generally provided that if an employee leaves, vested BSPCEs must be exercised within 30 to 90 days of their departure.

Requiring the employee to exercise their shares avoids uncertainty about the composition of the share capital.

This is particularly important when issuing a new BSPCE pool where many employees have left in the meantime.

Note that employees required to exercise their BSPCEs must pay the exercise price within the specified period, which can be problematic given certain valuations and may be a point of discussion on the exercise conditions.

Some companies have introduced the notion of bad leaver, which allows vested BSPCEs to be cancelled on departure. Case law has rejected this possibility for employees (on the grounds that financial penalties are prohibited).

However, in the event of a conflictual departure, and to avoid having a potentially hostile shareholder on the cap table, it is advisable for the company — or failing that, its principal shareholders — to benefit from a six-month call option (at market price) over the shares that the departing employee could have acquired by exercising their BSPCE.

An acceleration clause allows the beneficiary to vest all their shares immediately on the occurrence of a specified event (typically the sale of the company).

In practice, this acceleration clause is rarely included.

It mechanically reduces the company's valuation, since any prospective buyer will need to budget an equivalent amount to re-incentivise employees.

In practice, it is applied to certain C-level executives with the aim of aligning their interests as closely as possible with those of the shareholders/founders in a sale process where they often play a key role.

This clause is typically negotiated on a case-by-case basis and is often subject to adjustments.

In all cases, it is important to provide that the chairman (or the board) may at their discretion accelerate vesting if circumstances warrant it.

Yes! When someone joins the share capital, they must sign a shareholders' agreement.

The mini-pact is where you will typically find two important clauses:

• Leaver: if the employee resigns or is dismissed, the other shareholders will have the option to buy back their shares (linking the employee's status to that of the shareholder)

• Drag along: in the event of a takeover offer for the company, the majority shareholders can require minority shareholders to sell their shares to the acquirer (preventing a minority shareholder from blocking a sale of the company)

No, BSPCE are nominative and cannot be transferred.

Once the shares have been acquired, they may be transferred subject to certain conditions set out in the shareholders' agreement.

Note that in the event of the beneficiary's death, heirs have the right to exercise the warrants obtained under the BSPCE plan within 6 months of the death.

For the company

The company issuing the BSPCE bears no tax liability.

For the beneficiary

Tax on BSPCE is borne solely by the BSPCE beneficiary.

Trigger for taxation

No tax on grant, award, vesting or exercise of BSPCE.

Tax is only due when the shares subscribed through the BSPCE are sold.

Tax base

Only capital gains on the sale of shares acquired through BSPCE are taxed.

Shares are acquired for €10,000 per share through BSPCE and sold for €15,000 → the capital gain is €5,000.

Tax rate

• The beneficiary has worked in the company for more than 3 years:

  • flat-rate levy (PFU): 12.8%

  • social charges: 17.2%

  • = 30%

  • 5,000×30% = €1,500

• The beneficiary has worked in the company for less than 3 years:

  • Income tax: 30%

  • social charges: 17.2%

  • = 47.2%

  • 5,000×47.2 = €2,360

For the company

The company must provide each beneficiary with an individual statement by 1 March of the year following exercise of the warrants, setting out the following information:

• The purpose for which the statement is prepared

• Information about the company: name and registered office

• Information about the beneficiary: identity and address

• Details of the shares issued: number, price and date of acquisition

• The date the beneficiary started working for the company or the date of their departure and their length of service if they have left the company

For the beneficiary

No declaration is required unless the shares have been sold and a capital gain has been realised.

If shares are sold and a capital gain is realised, the gains must be declared in the tax return under 'investment income'.

Alex supports you with:

• Setting up the BSPCE plan

• Drafting all the legal documentation

• Handling electronic signature (DocuSign)

• Filing the documentation — accessible at any time on your company's Alex page

• Keeping the cap table up to date — visible from your account

• Managing key dates (BSPCE exercise, capital increase, etc.)