FRANCE Law and Practice Contributed by: David-James Sebag, Donald Davy and Marie-Sophie Chevreteau, Gide Loyrette Nouel
5. Employment Incentives 5.1 General
revenus“ or CEHR). There is no tax specificity for capital gains realised on shares of growth/ start-up/VC fund portfolio companies. 4.3 Government Endorsement The French government has implemented sev - eral initiatives to bolster equity financing activ - ity in France. These measures are designed to support startups, small and medium-sized enterprises (SMEs) and innovation, as well as to stimulate investment in the French economy. One of the key strategies has been the introduc - tion of tax incentives to encourage investment in SMEs. For instance, the Madelin tax credit allows individuals investing in SMEs to benefit from income-tax reductions. In addition, the French government has reformed savings plans to direct more savings into equity financing. The Plan d’Epargne en Actions (PEA) and the Plan d’Epargne Retraite (PER) are exam - ples of savings plans that offer tax advantages to individuals investing in stocks or equity funds, with the aim of channelling more personal sav - ings into the equity market. To foster innovation, the government has set up the French Tech Initiative, which aims to promote the growth of French startups and to attract for - eign talent and investors. This initiative includes the French Tech Visa, a simplified, fast-track scheme for non-European start-up founders, employees and investors to obtain a residence permit in France. Additionally, as a member of the European Union, France benefits from EU-wide initiatives such as the Capital Markets Union (CMU), which aims to deepen the single market for capital across the EU.
In France, as in many other jurisdictions, the long-term commitment of founders and key employees is often sought through a combina - tion of contractual agreements, equity incen - tives, and corporate-governance mechanisms. These tools are designed to align the interests of the founders and key employees with the suc - cess and longevity of the company, as follows. Founders • The shares of the founders are generally subject to transfer restrictions – a four-year lock-up (with a 10% carve-out); a propor - tional tag-along of the main investors; and/ or a full tag-along right in case of transfer of a significant part of their shares. • Leavers provisions – repurchase by the investors (and other active founders) in case of departure; claw-back on 100% of the shares (in the event of “bad leaver” ) or only on unvested shares with a reverse vesting (in the event of “good leaver” ). The acquisition price can be equal to nominal value (bad leaver); fair market value (good leaver); or discounted price (for termination for cause but without gross or wilful misconduct). The terms and conditions of the claw-back are subject to tough negotiation, and can differ from one matter to another. • Finally, certain rights of the founders provided in the shareholders’ agreement (primarily the right to appoint board members, and anti- dilution rights) are conditional on the founders being active in the company. Key Employees • Long-term commitment of key employees is generally secured through the allocation of founders’ warrants (BSPCE – bons de sou-
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