Free Share Allocation: Opportunities for Employees

Free share allocation is a common practice in many companies, allowing them to reward and retain employees by offering them shares in the company. This scheme, introduced by the law of December 30, 2004, offers employees an opportunity to participate in the performance of their company while benefiting from tax advantages. This article explores the mechanisms of free share allocation, the benefits for employees, and the tax implications to consider.

What is Free Share Allocation?

Free share allocation allows a company to distribute shares free of charge to its employees, subject to certain conditions of duration and performance. The allocated shares are subject to an acquisition period, usually two years, during which the employee cannot sell or transfer the shares. After this period, the shares become fully vested, but they remain subject to a holding period, often also lasting two years.

Benefits for Employees

Free share allocation offers several advantages to employees:

• Participation in the company's performance: By receiving shares, employees become shareholders and can thus benefit from the appreciation of the shares and potential dividends.
• Motivation and retention: This scheme encourages employees to invest more in the company by aligning their interests with those of shareholders.
• Tax advantages: Gains made from the sale of allocated shares benefit from a favorable tax regime after a minimum holding period. Capital gains are taxed at a flat rate of 30%, including income tax and social security contributions.

Example of Free Share Allocation

In 2023, a company decides to allocate 100 shares free of charge to each of its employees, subject to remaining with the company for two years. At the end of this period, the shares are definitively acquired by the employees. If, in 2025, the share price has increased by 50%, employees can sell their shares and realize a capital gain. Assuming the share was allocated at a price of €100, selling it at €150 per share generates a capital gain of €5,000 for 100 shares, subject to the 30% flat rate tax, resulting in €1,500 in tax.

Laws Regulating Free Share Allocation

In France, free share allocation is regulated by the Commercial Code (articles L. 225-197-1 and following) and the General Tax Code (articles 80 quaterdecies and 200 A). These texts establish the conditions for allocation, the holding obligations, and the tax rules applicable to capital gains made when selling the shares.

Conclusion

Free share allocation is a beneficial scheme for employees, allowing them to participate in the performance of their company while benefiting from favorable tax conditions. However, it is important for employees to understand the acquisition and holding conditions of the shares, as well as the tax implications, before making decisions regarding the sale of allocated shares. This scheme represents a significant opportunity to enhance employee engagement while offering them a share of the company's successes.