Employee equity in France: Understanding BSPCEs

Employee equity in France: Understanding BSPCEs

Author: Lucy Hoyle
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Read time:  6 minutes
Published date:  20 February 2024
Employee ownership schemes are now available to a wider pool of French workers than ever before, including the most popular among them: BSPCEs.

France is one of the world’s leading startup hubs. It’s currently ranked fourth in Western Europe and eighth globally in Startupblink’s Global Startup Ecosystem Index (GSEI), having risen one place in 2023.

Part of what makes France’s startup culture so strong is its treatment of employee equity.  The country boasts several different employee ownership schemes which, following financial reforms in 2020 and 2023, are now available to a wider pool of French workers than ever before. This article will explore the most popular among them, the BSPCE scheme, and what’s needed before you can start using BSPCEs to attract and retain top talent.

What are BSPCEs?

Bons de souscription de parts de créateur d’entreprise (BSPCEs) are a type of employee share ownership plan (ESOP) commonly used by French startups to attract, motivate and retain talent.

BSPCEs are similar to option grants, giving employees the right to buy a certain number of company shares in the future for a predetermined price, known as the strike price. Stock options also exist in France, but they differ from BSPCEs when it comes to the plan conditions and tax treatment.

How do BSPCEs work?

BSPCE plans are structured similarly to the UK’s Enterprise Management Incentive (EMI) scheme in terms of vesting, exercise, and tax timing. However, French startups only have 18 months to issue BSPCEs after the incentive pool has been created and authorized. This happens during a general meeting of shareholders, which is also used to agree on the strike price, conditions, and timeframe for exercising BSPCEs. If a company wants to continue awarding BSPCEs after 18 months, it must follow the same process to set up a new pool.

Vesting and exercise

Like most share options, BSPCE grants vest under certain conditions, which are outlined in the BSPCE plan documents. A typical vesting schedule is four years with a one-year cliff: employees are entitled to 25% of their allocated equity after the first year, and then a further 25% in each of the following three years.

The majority of BSPCE grants in France follow a time-based vesting schedule, but an increasing number of startups are opting for performance-based vesting or a combination of the two. While this may help companies safeguard their share capital during the current economic downturn, it makes it harder for employees to “earn” their share in the business and prolongs the illiquidity of their equity.

But vesting alone doesn’t guarantee ownership: To become a shareholder, an employee needs to exercise their vested BSPCEs within a window agreed to by the company’s board of directors. Fixing the strike price at the grant date ensures that employees only pay what their equity is initially worth—even if its value has increased by the time they convert their BSPCEs into shares.

How are BSPCEs taxed?

As with tax-advantaged schemes like EMI and CSOP in the UK, French employees don’t have to pay tax on their BSPCEs until they sell the shares obtained upon exercise. Moreover, only the “gain” or increase in value (i.e. the difference between the strike price of the BSPCE and the sale price) is taxable.

 The longer an employee stays with the business, the more favorable the tax rate:

  • An employee with a tenure of less than three years pays 47.2% tax (30% personal income tax plus 17.2% social security contributions) on any gain in the value of their equity.

  • If an employee has been with the company for three years or more at the point of sale, they only pay a flat tax of 30% on gains (12.8% personal income tax plus 17.2% social levies). Alternatively, they can opt for the progressive income tax regime, with the rate determined by their salary (between 0% and 45%, plus 17.2% social levies).

It’s in an employee’s interest to stay on for at least three years to get maximum value from their equity, making BSPCEs a powerful talent-retention tool. 

Advantages and disadvantages of BSPCEs

If you’re thinking about setting up a BSPCE plan, it’s helpful to understand the benefits and limitations of BSPCEs compared to other incentive schemes in France.

Advantages

Unlike other types of employee equity, BSPCEs don’t cost anything to issue or receive. No tax is due upon grant, and the recipient won’t pay anything until they exercise their BSPCEs. By contrast, free shares (known as attributions d'actions gratuites or AGAs in France) incur tax for both the employer and the employee as soon as they’re issued. There are similarities between BSAs (bons de souscription d’actions) and BSPCEs—both work like options that must be exercised, there’s no tax liability for the issuing company and grantholders are only taxed at the point of sale—but BSAs must be paid for upfront.

The typically low cost of exercising BSPCEs is another key advantage of the scheme, but this wasn’t always the case. Prior to 2020, the strike price of a BSPCE award was based on either the company’s market value at the time of granting or the acquisition price paid by investors during the last fundraise—providing this took place less than six months beforehand. 

However, the 2020 French Finance Act (Loi de finance) introduced a major improvement to the BSPCE program. If a startup raises capital less than six months before awarding BSPCEs, and the shares issued to investors have more rights than the shares underlying the BSPCEs, it can set the strike price at a 20%-40% discount to the share price from that funding round. The lower the strike price, the more employees seek to gain from a potential future sale.

The French government took this one step further in 2023, announcing an illiquidity discount of around 50%-75% for BSPCEs granted from January 1, 2024. However, only companies that qualify as a young innovative company (jeune entreprise innovante or JEI) can take advantage of these new regulations.

Disadvantages

Unfortunately, not all startups are eligible for the BSPCE scheme. According to Article 163 bis G of the General Tax Code, in force since December 2019, a joint-stock company can grant BSPCEs if:

  • It is structured as an SAS (société par actions simplifiée), an SCA (société en commandite par actions) or an SA (société anonyme)

  • It is liable for corporate tax in France

  • At least 25% of its capital is directly and continuously held by natural persons, or by legal entities with at least 75% of their capital directly held by natural persons

  • It was not created as part of a concentration, restructuring, extension, or takeover of pre-existing activities, unless it meets certain conditions

  • It was registered less than 15 years ago (e.g. in the French Trade and Companies Register)

A listed company with a market cap of €150M or less can also issue BSPCEs—and continue to do so for three years after exceeding this limit—as long as it fulfills all of the other conditions.

However, the 2020 Finance Act extended the scope of the BSPCE scheme to include French employees of international businesses—provided that the country they’re registered in is part of the European Union or has a tax treaty with France. To qualify, a company must meet the above criteria—with the exception of company structure and tax jurisdiction.

When and why do I need a BSPCE valuation?

Before issuing BSPCEs to French employees, you need a BSPCE valuation to determine the strike price of the equity award. This is done by calculating the fair market value (FMV) of your company’s ordinary shares or using the share price from a recent fundraise (i.e. less than six months ago). A discount may then be applied to account for factors like loss of economic value since your last funding round, non-preferential rights, or illiquidity, if relevant.

Note that BSPCE valuations expire every 18 months—in line with the incentive pool – or whenever a material event occurs, so having an up-to-date valuation is essential if you want to continue granting equity to employees in compliance with French law.

Unlike EMI and CSOP valuations in the UK, which are subject to pre-clearance from HMRC, there is no assured valuation mechanism in France. This means that the French tax administration won’t approve the value of your BSPCEs before you start issuing them, and could still challenge the strike price in the event of an audit—especially if it's heavily reduced.

However, any valuation that differs from the valuation of a funding round should be supported by an expert report. Not doing so runs the risk of the authorities requalifying BSPCEs as salary for tax purposes—meaning employees would be liable to pay income tax on their grants, while your company would be liable to pay steep employer tax and social security contributions. Furthermore, your company could be exposed to fines and interest payments on the sum due after requalification.

Find out more about managing your employee equity in France
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Lucy Hoyle
Author: Lucy Hoyle
Lucy Hoyle is a content marketing manager at Carta, representing international markets within the editorial team. She was previously a content curator for ebook subscription platform Perlego, where she collaborated with authors, publishers, and universities to improve global access to education.
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