Remuneration and employee share ownership

Free shares and management packages in France: legal and tax framework

The free share allocation (AGA) is one of the legal tools most often used to build a management package. Issuing free shares is subject to strict caps and to a special report from the statutory auditor (commissaire aux comptes). Since 2021, the gain they produce has been under closer tax scrutiny.

Free share allocation, a management package tool

A management package gives a company's executives and key managers a share in the value it creates, most often in connection with a private equity transaction. The AGA (articles L.225-197-1 to L.225-197-5 of the French Commercial Code, Code de commerce) is one of its most common legal instruments, alongside BSPCE (founders' share warrants), stock options and share subscription warrants (BSA/ABSA), whose issue also requires, where the company has no statutory auditor in office, the appointment of an ad hoc statutory auditor. The AGA allows the extraordinary general meeting to authorise the board of directors or the management board (directoire) to allocate existing or new shares free of charge to employees and corporate officers (mandataires sociaux) of the company, or to certain categories of them.

Legal caps on allocation

• The general cap is 15% of the share capital, since the increase made by law no. 2023-1107 of 29 November 2023 on value sharing (the cap was previously 10%).
• In companies meeting the EU definition of an SME, the articles of association may raise this cap to 20% of the capital where the allocation benefits only certain categories of employees (previously 15%).
• The cap rises to 30% where the allocation benefits employees representing at least 25% of the gross payroll and at least 50% of the company's staff, and to 40% where it benefits all employees.
• No shares may be allocated to employees and corporate officers who each hold more than 10% of the share capital, and no allocation may take them above that level.

Vesting and holding periods

The vesting period, at the end of which the allocation becomes final, cannot be shorter than one year. The combined length of the vesting and holding periods, set by the general meeting, cannot be shorter than two years.

The statutory auditor's special report

The extraordinary general meeting decides on the authorisation to allocate shares on the basis of the report of the board of directors or management board and the special report of the statutory auditors. A separate special report, prepared by the board of directors or management board (the president in an SAS), then informs the ordinary general meeting each year of the transactions carried out, stating in particular the number and value of the shares allocated free of charge during the year to each corporate officer (article L.225-197-4).

The risk of reclassification as salary: the 2021 case law

In three decisions handed down in plenary session on 13 July 2021 (nos. 428506, 435452 and 437498), the Conseil d'État, France's highest administrative court, held that a gain arising mainly from the performance of duties as an executive or employee, rather than from a genuine investor's risk on the capital, falls into the category of employment income (traitements et salaires) and not capital gains on securities. This approach was later applied to the gain from exercising a purchase undertaking granted to an executive, which amounted to a put option, in a decision of 5 June 2023 (no. 467546). It applies to all management package instruments, including the AGA.

The new tax regime under article 163 bis H of the CGI

The 2025 Finance Act (law no. 2025-127 of 14 February 2025, article 93) created a tax regime specific to gains on management packages, codified in article 163 bis H of the French General Tax Code (Code général des impôts, CGI) and applicable to gains realised on a sale, buyback, redemption or cancellation of securities taking place since 15 February 2025. This regime reverses the previous logic: the gain is now presumed to be salary, unless the taxpayer shows that all or part of it falls under the capital gains regime, which requires a genuine risk of capital loss on the price actually paid and a minimum holding period of two years. The Finance Act and the Social Security Financing Act for 2026 clarified certain calculation parameters of this regime, which is still recent.

This last point concerns the beneficiary's taxation and the structuring of the transaction, areas in which audit france refers its clients to their tax advisers. The statutory auditor's engagement covers compliance with the caps and the issue procedure at company level.

Our approach at audit france

audit france prepares the special report required for the issue of free shares, with rigorous checks on the caps in the law and in the articles of association (statuts) and a timetable aligned with that of the general meeting. The signing partner remains management's single point of contact throughout the engagement.

Why choose audit france

A 100% digital firm dedicated solely to statutory audit, registered with the Haute Autorité de l'Audit (H2A) and a member of the Compagnie Nationale des Commissaires aux Comptes (CNCC) and working across mainland France and the French overseas territories.

This page is a practical guide in English, for information only. It is not legal advice, and only the French texts have legal force. Check the version in force for your own situation.