The legal system comprises several distinct stages (article L225-197-1 of the French Commercial Code):

1. The Extraordinary General Meeting authorizes the Chairman of a société par actions simplifiée (simplified joint-stock company), or the Board of Directors or Management Board of a société anonyme (joint-stock company), to grant bonus shares to employees or certain categories of employees, up to a maximum percentage of the share capital (15% to 40% of the capital, depending on the size of the company and the distribution of beneficiaries). This authorization is valid for a maximum of 38 months. The Meeting also determines the length of the vesting period for bonus shares, which must be at least one year, and any holding period.

2. The allocation of free shares to beneficiaries designated by the Chairman of the SAS, or in the case of public limited companies, the Board of Directors or the Management Board, which then sets the conditions and, where applicable, the criteria for the allocation of the shares.

The designated beneficiaries are not yet shareholders at this stage, but have acquired a right to own the shares allocated to them, subject to compliance with the conditions and criteria set for allocation;

3. The end of the vesting period (also known as the definitive allocation period) for the shares, at the end of the period determined by the General Meeting, i.e. at least one year after the allocation.

The beneficiaries then become owners of the free shares allocated, and therefore associates or shareholders of the issuing company;

4. The end of the holding period, at the end of which beneficiaries may sell their shares. The General Meeting is not obliged to decide on a holding period for the shares. However, the cumulative vesting and, where applicable, holding periods determined by the meeting must be at least 2 years.

A favorable social scheme subject to conditions, severely penalized…

From a social point of view, article L.242-14 of the French Social Security Code stipulates that the acquisition gain, which corresponds to the value of the free shares allocated on the acquisition date, is excluded from the social security contributions base “if the employer notifies its collection body of the identity of its employees or corporate officers to whom shares have been allocated during the previous calendar year, as well as the number and value of shares allocated to each of them“.

The penalty for this obligation is severe: “Failing this, the employer is liable for payment of all social security contributions, including the employee portion” (article L.242-14 of the Social Security Code).

… but not very explicit!

In view of the consequences of a late declaration, the date of this declaration should be clearly established. However, this is not the case.

Indeed, a literal reading of the rule would argue in favor of a declaration in the calendar year following that of the award decision (step 2).

This is the position of BOI-RSA-ES-20-20-30 of June 2016, still published at the date of this post, and that of net-entreprises Net-Entreprises.fr.

However, the term “allocation” is ambiguous, as it is used by the law both for the designation of the beneficiaries of the bonus shares (step 2), and for the end of the vesting period, also known as the “definitive allocation” (step 3), which can be longer than one year.

It can therefore be deduced from the terms of Acoss circular 2013-0000019 dated 28-3-2013 (paragraph 2.5) that the triggering event for the declaration to Urssaf is the expiry of the vesting period (step 3).

We note that until January 1, 2013, the French Social Security Code (article L242-1) required the declaration of the identity of employees “to whom free shares were definitively granted during the previous calendar year”, without it being known whether the omission of the term “definitively” in subsequent versions was deliberate or the result of an oversight.

Most of the decisions handed down by the courts in recent years following Urssaf reassessments simply note that the company concerned never notified the Urssaf of the beneficiary of the bonus shares, without going into the details of the reporting deadlines. The rare decisions specifying dates seem to support this second interpretation (Lyon Court of Appeal, Social Division, June 28, 2016, no. 15/04858), but relate to events prior to 2013.

In addition, reporting obligations have been modified with the introduction of the monthly DSN nominative social declaration, which has replaced the annual declaration of wages (DADS) since January 2017. The DSN is transmitted by the 5th or 15th of the following month at the latest (the 5th for employers with 50 or more employees who are not on a payroll shift, the 15th for others), which adds to the confusion.

It would be advisable for the legislator to clarify the starting point of the reporting obligation, and in particular the notion of “allocation” of shares mentioned in article L.242-14 of the Social Security Code.

In the meantime, we feel it is more appropriate to adopt the second interpretation, and consequently to declare the beneficiaries of bonus shares in the DSN at the end of the vesting period.

This pragmatic position is in line with the current direction taken by the French Supreme Court (Cour de Cassation), to draw a parallel with the triggering event recently retained for BSAs by the High Jurisdiction in a decision dated September 28, 2023.

Our Alister teams have developed expertise in setting up mechanisms for associating managers or employees in the company’s capital. Don’t hesitate to call on us if you need support or advice on employee shareholding.

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