Global Share Option Plans
France
Securities laws and regulation
Exchange control
Company law
Employment law
Plan communications
Data protection
Governing law
Tax treatment
Non-employee options
Other
Securities laws and regulation
Red flags
What are the key securities laws and regulatory obligations or restrictions in relation to granting options, exercising options, selling resulting shares or other relevant events? For example, would a prospectus or any filings be required?
Response
Securities law filings: There are no general securities law filing requirements in relation to the grant or exercise of options, or the selling of resulting shares, provided these are not offered to the public.
Prospectus: There are no specific French regulations requiring a prospectus. However, the EU Prospectus Regulation requires that a document containing information on the number and nature of the shares and the reasons for and details of the offer be made available. In practice, this obligation is usually satisfied by providing an option plan detailing the conditions for the grant and the exercise of the options.
Regulatory:
- If a French entity intends to grant options, only joint-stock companies are able to grant options (ie, société anonyme, société par actions simplifiée, société en commandite par actions).
- Options can only be granted to employees or corporate officers subject to the French employee tax regime (ie, président, directeur général, président du conseil d’administration, membre du directoire) owning less than 10% of the share capital in the company.
- The total number of shares under options granted at any time must not exceed one-third of the company's share capital.
Exchange control
Red flags
Are there any exchange control restrictions, notification/filing, or approval requirements related to the exercise of options or sale of shares?
Response
There are no exchange control restrictions applicable to the grant and exercise of options or the transfer of the underlying shares.
Company law
Red flags
Are there any red flag company law and corporate governance considerations, for example, shareholder approval requirements or financial assistance restrictions?
Response
For private companies, there are no general corporate governance requirements that apply to the grant of options unless the company has voluntarily chosen to follow a corporate governance code. Subject to the company's constitutional documents and/or any agreement with shareholders/investors, certain consents or approvals may be needed.
Where a French entity intends to grant options, only joint-stock companies may grant the options (ie, société anonyme, société par actions simplifiée, société en commandite par actions).
Employment law
Red flags
Are there any material employment law issues to be aware of, for example the requirement to consult employees?
Response
The consultation of employees prior to granting options is not specifically required by French law.
For companies that employ more than 50 employees, the company should consider disclosing information regarding the grant of options to the works council (Conseil Social et Economique) for the annual consultation on the company’s social policy.
Plan communications
Red flags
Are there any requirements for the communications, for example, a translation into any language(s), and if so, which?
Response
The legal documentation must be drafted or translated into French.
Annually, as part of the shareholders’ meeting called to approve the company's financial statements:
- The company's governing body must report to the shareholders the number of options granted to date and the number of options exercised during the past financial year.
- A special report must be prepared that describes the options granted to the executive managers and to the ten employees who received the most options in the last financial year.
Data protection
Red flags
What are the key data protection requirements, if any?
Response
Employees should be informed of how their personal data is collected, processed and disclosed in connection with an employee share plan. A privacy notice should be provided, or the plan should include details on how to access a company's privacy notice.
Wider data protection obligations apply in accordance with the GDPR, relating notably to the implementation of relevant GDPR documentation (eg records of processing activities and data processing agreements where applicable), data security and data transfers outside the EU.
Governing law
Red flags
Will governing law and jurisdiction clauses be effective?
Response
In general, the governing law and jurisdiction clauses are likely to be effective, but the French courts may also claim jurisdiction for questions which relate to a French employment.
Tax treatment
Red flags
What is the tax and social security treatment (including other employee and employer levies)? Are there any red flag issues, for example tax on grant, filings or notifications?
Response
Tax on grant: The grant of options to French employees does not normally give rise to any French tax liabilities.
Tax on exercise: The difference between the fair market value of the underlying shares at the time of the exercise less the exercise price is subject to progressive rates of income tax, the exceptional contribution applicable to high earners, and both employer and employee social charges, which are payable by the French employer in the month following the one during which exercise occurs.
Any capital gain arising from the sale of the shares acquired on exercise (ie the difference between the sale price less the fair market value of the underlying shares on exercise) is subject to:
- A flat rate of tax (comprised of income tax plus social security contributions) below a specific threshold. The specific threshold is determined based on a calculation consisting of a 3x multiple of the group's financial performance in the holding period between the date of acquisition of the shares and the date of their sale.
- Salary treatment (comprised of progressive income tax and special employee social security contributions) above said threshold.
The taxes and charges listed above are payable the year following the one during which the subscribed shares are sold. There is no withholding liability for the French employer for any taxes or charges arising on a capital gain.
Tax-favoured plans:
Tax-favoured plans are available where two key qualifying conditions are met:
- the foreign issuing company has a taxable presence in France (ie, an entity subject to corporate income tax in France where the French option holders work, such as a subsidiary or a branch), and
- a French sub-plan is drafted in compliance with the French Commercial Code (eg the exercise price must be at least equal to the fair market value of the issuing company’s shares at the date of grant, an option cannot be granted to an employee holding more than 10% of the company’s share capital, and the overall options granted do not exceed 10% of the company's share capital).
The key advantages are lower effective rates and/or exemptions from employer social charges on exercise of the options (subject to compliance with specific reporting formalities following both the grant and exercise of the option), and deferral of income tax until sale of the option shares.
The employer is liable to pay up-front social contributions (levied at a 30% flat rate) assessed on 25% of the fair market value of the underlying option shares as at the date of grant of the option, payable within two months of grant.
Where the tax-favoured qualifying conditions are not met on the date of grant of an option, the difference between the fair market value of the shares on the date of exercise and the exercise price is treated as salary of the option holder and tax will be payable on this, in the month following the one during which exercise occurs.
Non-employee options
Red flags
Are there any issues with granting options to non-group employees, eg, advisers/consultants or PEO employees?
Response
Options granted to non-employees (including members of the board of directors (membres du conseil d’administration) and the members of the Supervisory Board (membres du conseil de surveillance)) of the issuing company or group companies (eg advisers, consultants, PEO employees) do not require a specific sub-plan, but cannot benefit from French tax-favoured option arrangements.
On exercise of options by non-employees, independent tax advice should be obtained as tax liabilities are typically treated and taxed as professional/self-employment income, with social charges also usually falling on the individual.
Other
Red flags
Are there any other red flags, for example, is a sub-plan required?
Response
Options granted to French employees pursuant to a foreign plan (ie, non-French issuing company) may only benefit from the tax-favoured treatment where a French sub-plan is drafted that is compliant with the French Commercial Code.
