Scarlett Pierce
Jul 19, 2022 3:24:08 PM

What’s the secret to startup success? A good product, strong leadership and financial backing are important – but they’re nothing without the right team.

Startups know this. It’s why the competition for tech talent is so tough. The right hire at the right time can make or break a business, so building an attractive employee reward package is imperative.

A key part of that package is employee equity. Offering equity enables a business to financially motivate its people without adding to its overheads. Share schemes not only incentivise talent to join, but to stay, and to work hard: the better they perform, the better the business performs, and the more their shares will eventually be worth.

But employee equity packages aren’t one-size-fits-all. What works for one team in one geography won’t necessarily work for another, and there are cultural and regulatory requirements you need to be aware of as you set up your scheme. Capdesk can help, wherever your team is, and however you choose to reward them.

Here’s everything you need to know about employee equity in France.


The state of employee equity in France

France is one of the world’s leading startup hubs. It’s currently ranked ninth globally, having risen three places in 2021. And its trajectory doesn’t look set to slow anytime soon; recently, a raft of regulation has been introduced with the explicit intention of creating a startup ecosystem in France to rival Silicon Valley.

Part of what makes France’s ecosystem so strong is its treatment of employee equity. In Not Optional’s ranking of the ‘friendliness’ of employee stock options in 24 European Nations, France came in sixth. It’s a strong showing: France scored the maximum five out of five on half of the key criteria Not Optional assesses against. The other three criteria, against which France ranked slightly lower, were:

  • Strike price: Can options be offered at a strike price below last-round valuation, without adverse tax treatment – reflecting that they are illiquid, high-risk, and non-preferred?
  • Employer taxation: Is there any financial impact for companies using stock options? If so, when is it incurred? What rate is applied? Are employer social contributions payable, and if so, how much?
  • Employee tax rate: Which rate is applied – income, capital gains, or something else? Are employee social contributions payable, and if so, how much are they?

France is already making headway against some of these issues – employee tax rate in particular. More favourable employee stock options are now available to a wider pool of French workers than ever before, making France an attractive destination for top startup talent.


Changes to employee equity in France

The most popular employee stock option in France is the BSPCE, or ‘bons de souscription de parts de créateur d’entreprise’.

In 2020, the BSPCE programme was overhauled by the French government. The move was in response to an open letter signed by 500 European startup founders, which called for EU member states to “fix the patchy, inconsistent and often punitive rules that govern employee ownership”. The letter argued that tech workers in the US typically owned twice as much equity in the companies they worked for than tech workers in the EU, and that the disparity meant European businesses were missing out on the talent critical for their growth.

France took note, making two major changes to the BSPCE programme. The first was to change what employees pay for their stock options. Previously, the price employees paid for their stock options was the same as the acquisition price paid by VCs at the last fundraise. Now, employees can purchase stock options based on their fair market value – a substantially reduced rate which means they’re likely to see a higher rate of return on their investment.

The second change was to extend the BSPCE programme to French employees of businesses headquartered elsewhere. Businesses need to pay income tax in France, but don’t need to be based there, in order to offer BSPCEs to their French workforce. This means French workers who are employed by international businesses can now take advantage of the programme. It’s good news for businesses scaling into France too, as they can offer more competitive compensation packages to the French talent pool.


What are BSPCEs?

So, how do BSPCEs work?

BSPCEs work in the same way as most other stock options. They give employees the right to buy a certain number of shares in the future for a predetermined price. BSPCE programmes are structured similarly to EMI schemes in the UK. The typical vesting schedule is four years with a one year cliff: employees are entitled to 25% of their allocated stock options after one year, and then granted another 25% each subsequent year.

Employees only pay personal income tax of 12.8% on gains, ie. the increase in value from when the stock option is issued to when it is sold. Alternatively, employees can choose to have their BSPCEs taxed as salary, with the tax rate determined by the employee’s earnings (0% - 45%). The tax rate for BSPCEs is better for employees the longer they stay with the business. If an employee has been with the business for less than three years at the point of sale, their personal income tax rate rises to 30%, and there is no option for BSPCEs to be taxed as salary. So it’s in employees’ interests to stay with the business for at least three years in order to get maximum value from BSPCEs, making them a powerful talent retention tool.

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How Capdesk supports customers in France

Capdesk supports a range of stock option types, including BSPCEs. And because the platform is so flexible, you can structure vesting however you like. Some of our French customers choose to split the issuance of share options between time-based grants (e.g. four-year vesting schedule with a one-year cliff) and milestone-based grants (e.g. when employees hit targets). Capdesk allows you to be creative with your BSPCE programme and find the incentive structure that’s most effective for your team.

Capdesk also supports multiple currencies, so you can manage your investors in their local currency. And we offer multiplan functionality, so you can create different share schemes for your employees across different global markets.

Find out more about managing your employee equity in France – or anywhere in the UK and across Europe – by speaking to one of our share plan experts today  ➡️

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