Stock purchase warrants: a way to fund your French company?

Funding your French company

Stock purchase warrants were created in 1998 to encourage business creators to take part in the equity of their company, and to stay there.

Summary:

1. Definition
2. Who can benefit from them?
3. Under what conditions can they be issued?
4. How is the buying price defined?
5. How are they taxed?
6. What are the practical modalities?
7. Additional details

1- Definition

Stock purchase warrants are a particular category of stock options. Basically, they are warrants that allow you to buy shares at the price that was defined when this warrant was issued. In other words, they guarantee that you’ll be able to obtain these shares at a certain price, no matter how their value changes over time. As such, the more the company grows, the larger the benefits of these warrants.

This effectively functions as an incentive for employees to take part in developing the equity of their company.

2- Who can benefit from them?

It is the company that issues stock purchase warrants. It can distribute them to:

• Its employees
• Its legal representatives, if they are subject to the “Employee” social regime
• Of the employees and legal representatives of its subsidiaries, as long as the company owns more than 75% of their shares, and that they meet the conditions for these warrants to be issued

3- Under what conditions can they be issued?

A company can only issue them if it is an SA (Public Limited Companies), an SCA (Limited Stock Partnerships) or an SAS (Simplified Joint Stock Company), and if it meets the following criteria:

• It is not listed on a French or foreign stock market, or it is on the market of a country in the European Economic Area with a market capitalization of less than 150 million €
• It has been registered in the RCS (Business and Companies Register) for less than 15 years
• It is subject to the French Corporate tax
• At least 25% of its shares are owned by “Natural Persons” (individuals), or “Legal Persons” (institutions representing several individuals) that are themselves at least 75% owned by Natural Persons
• The company cannot be the result of a concentration, a restructuration, an extension or a takeover of an existing activity.

Something you should keep in mind: Stock purchase warrants can’t be sold or passed on to someone else.

4- How is the buying price defined?

The price is defined by the Extraordinary General Meeting upon the report of the board council director and the auditors. However, it can’t be lower than the price of the stocks issued after the rise in capital, if this rise happened in the last 6 months.
It’s also at this time that the time limit for using these warrants is determined.

Something else to note: the general meeting can also choose to let the board decide who will benefit from these warrants. In these cases, it’s also up to the board to determine how many stock purchase warrants each people gets.

5- How are they taxed?                                                                                                                     

The net gains you make when selling your shares are subject to a 12.8% tax (+ 17.2% in social contributions), just like the net gains on any share). Though, if the employee has been working in the company for less than 3 years when the share is sold, the 12% turns into 30%.

6- Additional details:

The company that issues these warrants has to file a declaration to the tax authorities before the 1^st March of the year following the year when the warrants were issued. It can then give a duplicate to each beneficiary so that they can add it to their tax return.