The situation
A standard arrangement, such as a bonus or a BSPCE plan, could not fully meet the objectives pursued. It was therefore necessary to design a bespoke mechanism, suited to the company’s business model and to the project’s growth prospects.
Our support
- 01
Comparing the different incentive mechanisms
We studied several solutions for associating the founders with the growth of the business:
- a cash bonus indexed on performance;
- free shares;
- BSPCE granted by the parent company or an eligible group company;
- BSA (share warrants) subscribed at their market value;
- preference shares issued by the new company and other direct investment in the capital.
Each option was compared in terms of its cost to the company, its tax treatment, the level of risk borne by the beneficiaries, its dilution and its ability to reflect the value actually created in the new business.
Point of attention. The right instrument is not necessarily the one offering the best-known tax regime. Above all, it must match the value the founders are tasked with creating. - 02
Designing a package directly linked to the company’s growth
We chose to create a specific class of preference shares, subscribed by the founders when the company was formed.
We made sure the package formed a coherent whole between:
- the subscription price of the shares and their market value;
- the economic risk actually borne by the founders;
- the financial rights attached to the shares;
- the leaver conditions;
- the valuation formula used for their buy-back;
- the governance and voting rights;
- the restrictions applicable to transfers;
- the tax treatment on exit.
The company’s articles of association therefore provided for a class of preference shares, transfer and approval rules and a governance suited to the coexistence of the group and the founders.
Particular attention was paid to the risk that the gain might be regarded as earned in return for the beneficiaries’ duties. Article 163 bis H of the CGI provides a specific regime for management-package gains linked to the duties of an employee or director. For non-qualifying instruments, such as preference shares, access to the capital-gains regime within the statutory limit requires, in particular, a genuine risk of capital loss and a minimum holding period.
Point of attention. A bespoke management package must strike a balance between retention and an investment logic. A gain entirely disconnected from the real value of the shares carries a heightened tax risk.
The result
The new company was formed with an allocation of capital and rights suited to each person’s role.
The engagement covered the comparison of the instruments, the economic modelling of the package, its tax structuring, the drafting of the articles of association and the undertakings, and the formation of the company.
This case was handled by the firm, in light of the law and case law in force at the time of the engagement, and in the light of circumstances specific to it. It is presented for illustration purposes only: it does not constitute advice and does not predetermine the treatment that might be adopted in another matter.