Bons de Souscription de Parts de Créateur d’Entreprise (BSPCE) are a popular financial tool for start-ups and innovative companies in France. Introduced in 1998, the scheme aims to attract and retain talent, while aligning the interests of employees with those of the company. BSPCEs offer a unique opportunity for employees to become shareholders in their company, creating a virtuous circle of motivation and commitment.
Understanding the BSPCE mechanism
BSPCEs operate like stock options at a predetermined price. In concrete terms, they give the holder the right to acquire shares in the company at a price fixed in advance, known as the exercise price. This mechanism enables beneficiaries to potentially benefit from the company’s future growth.
The BSPCE allotment process takes place in several stages:
- The company issues the BSPCE
- The warrants are allocated to the beneficiaries
- A vesting period is generally applied.
- Beneficiaries can exercise their warrants once they have vested.
- Upon exercise, the holder becomes a shareholder of the company
It is important to note that BSPCEs are subject to strict eligibility conditions. In particular, the issuing company must be a joint-stock company, less than 15 years old and not listed on the stock exchange. In addition, at least 25% of its capital must be held by individuals.
Tax advantages and attractiveness of BSPCEs
One of the main advantages of BSPCEs is their advantageous tax treatment. Unlike conventional stock options, BSPCEs benefit from a particularly attractive tax regime for beneficiaries. The capital gain realized on the sale of shares acquired via BSPCEs is subject to capital gains tax, with potentially reduced tax rates.
The following table compares the applicable tax rates according to the length of time the shares have been held:
| Holding period | Tax rate (excluding social security contributions) |
|---|---|
| Less than 3 years | 30% |
| More than 3 years | 19% |
This tax advantage makes BSPCEs particularly attractive for the talent that startups are looking to recruit and retain. What’s more, for the company, issuing BSPCEs has the advantage of not generating any social charges, unlike other forms of remuneration.
Strategic stakes and considerations
The use of BSPCEs raises important strategic issues for company executives. Capital dilution is a crucial consideration. Indeed, the exercise of BSPCEs leads to an increase in the number of shares outstanding, thus diluting the shareholding of existing shareholders.
Managers therefore need to strike a balance between :
- motivating key employees
- Safeguarding the interests of existing shareholders
- Company growth prospects
- cash management
The company’s valuation also plays a crucial role in the attractiveness of BSPCEs. Too high a valuation could make the exercise of the warrants less attractive for beneficiaries, while too low a valuation could lead to excessive capital dilution.
It is also important to consider the psychological impact of BSPCEs on employees. While this scheme can create a strong sense of belonging and commitment, it can also generate high expectations in terms of company performance and valuation.
Outlook and alternatives
The BSPCE scheme, while effective, is not without competition. Other profit-sharing mechanisms such as Free Shares (AGA) or Stock Warrants (BSA) offer interesting alternatives, each with its own advantages and constraints.
Recent legislative developments, notably the 2019 PACTE law, have brought changes to the BSPCE regime, aimed at making it even more attractive. These changes include:
- The broadening of eligibility conditions for companies
- The possibility of granting BSPCEs to directors
- More flexible rules for international mobility of beneficiaries
These changes reflect the legislator’s determination to maintain the attractiveness of BSPCEs in the French start-up ecosystem. However, given the international competition for talent, particularly in the technology sector, it is likely that this system will continue to evolve in order to remain competitive.
Ultimately, Bons de Souscription de Parts de Créateur d’Entreprise remain a powerful tool for aligning the interests of employees and the company. Their judicious use can significantly contribute to the success of startups and innovative companies, by attracting and retaining the talent they need to grow. However, their implementation requires careful consideration of the company’s overall strategy and long-term objectives.
