Recap on BSPCE

Founder's share subscription warrants (BSPCE) are an essential mechanism for start-ups looking to attract and retain talent, while aligning the interests of employees with those of investors. This article explores in depth how BSPCE work, their advantages, their eligibility conditions and their taxation, based on various specialized sources.

What are BSPCE and how do I know if I am eligible ?

BSPCE are financial securities that offer employees and managers of start-ups the right to subscribe to shares in the company at a specific price. They are designed specifically for start-ups by offering potential participation in the company's success for new talent. Unlike traditional stock options, BSPCE benefit from a more favourable tax and regulatory framework.

To be able to issue BSPCE, a company must meet several strict criteria:

• Legal form: the company must be a SA or an SAS, and be subject to corporate income tax

• Capital: at least 25% of the capital must be held by natural persons on a continuous basis

• Age of the company: the company must have been registered for less than 15 years and not be the result of a merger, restructuring, extension or takeover of pre-existing activities

• Contribution: the company must be unlisted or with a small market capitalization (less than €150 million)

Article 11 of the Finance Law for 2020 extends, under certain conditions, the scope of BSPCE to companies:

• Have their registered office in a Member State of the European Union or in a State that has concluded a tax treaty with France to combat fraud or tax evasion

• Be liable to an equivalent corporate tax in the State where its registered office is located

 

How does it work ?

Employees may decide to use their BSPCE at any time during the "exerciable" period set by the Extraordinary General Meeting in the regulations of the BSPCE plan. During this period, they have the option of buying shares in the company at the price determined when the BSPCs are allocated (the EGM therefore sets the price of the shares and the period during which they can be exercised).

To exercise their BSPCE, the employee must fill out a subscription form. Thanks to BSPCE, the employee can buy shares at the price set at the time of allocation, which is often lower than the real market value. For example, if the purchase price set at the time of the allocation of the BSPCE was €5 and the market value of the share is €20, the employee buys the share at €5, thus benefiting from a significant financial advantage. Once the shares have been purchased via the BSPCE, the employee becomes a shareholder of the company.

Note: regarding BSPCE not used by an employee who leaves the company, several options are generally provided: the vouchers are immediately lost; they can be used within a certain period of time after the termination of the contract; they may be exercised under the initial conditions set out in the plan.

Vesting and cliff

Vesting  is a mechanism by which BSPCE are acquired gradually by the beneficiaries according to a defined schedule. This schedule can be based on the length of time they have been with the company or on performance criteria. For example, a  typical linear vesting might be four years, with a one-year cliff, where 25% of BSPCE vest after the first year, and then the rest vest monthly or quarterly.

The cliff is an initial period during which no BSPCE is acquired. If an employee leaves the company before the end of this period, he or she loses his or her entitlement to the BSPCE. This encourages long-term loyalty and ensures that only long-term committed employees benefit from BSPCE.

BSPCE can be exercised once the vesting conditions are met. At this time, employees can buy shares in the company at the price agreed upon when the BSPCE are allocated. The exercise of BSPCE also depends on the market and the value of the shares. In the event of a capital loss, employees can choose not to exercise their BSPCE to avoid losses.

The tax regime of BSPCE and its advantages

The taxation of BSPCE is particularly advantageous and is one of the main attractions of this mechanism. Here are the main aspects to consider:

Taxation of capital gains:

No taxation on issuance:

Companies do not bear any tax and/or social charges when issuing BSPCE, which makes this scheme particularly attractive for young companies in the growth phase.

The advantages:

• Talent attraction and retention: BSPCE make it possible to offer competitive remuneration without an immediate impact on cash flow. They are especially useful for start-ups that may not have the means to offer high salaries

• Alignment of interests: by offering a share of the company's capital, BSPCE align the interests of employees and managers with those of shareholders. This motivates recipients to contribute to the success of the business

• Advantageous taxation: the tax regime of BSPCE is more favourable than that of traditional stock options, making this mechanism attractive to employees and investors

BSPCE are an essential tool for start-ups and investors. They help attract and retain talent, while providing significant tax benefits and aligning the interests of employees with those of shareholders. For business angels, mastering the use of BSPCE is crucial to maximize the value of their investments and support the growth of innovative start-ups.