Tax law
Our Experts in DAF Magazine | Shareholders of all companies, get rich… for free!
Published on 05/26/2026
Copy link
Shareholders of all companies, get rich… for free!
Incentive schemes shape the relationship between performance and compensation. From startups to large corporations, they define retention strategies.
The second installment in a four-part series on these incentive mechanisms: free shares.
While their allocation offers an effective tool for aligning the interests of shareholders and employees without any initial financial outlay, this mechanism operates within a strict legal framework.
The benefits of free shares (AGA) are numerous.
– Alignment of interests among founders, managers, and employees.
– Limited cash outflow, unlike traditional bonuses or incentives.
– Employee motivation and retention, with a progressive vesting period, in highly competitive sectors.
– Allocation criteria, performance and attendance requirements(1), or preparation for a capital transaction (sale, LBO, IPO).
RBS plans structure the shareholder base around a core group of key individuals. The employee becomes an owner upon expiration of the vesting period, at least one year before being able to dispose of the shares. A lock-up period may also be imposed, preventing the resale of shares for a certain period.
Another advantage of free shares is that they constitute a form of indirect compensation, with mandatory deductions (tax and social security) for the employer and the manager (employee) that are much lower than those for direct compensation (traditional salary). Compared to stock option plans (SOPs), AGAs offer the certainty of becoming a shareholder, whereas SOPs (“The Discreet Charm of Stock Options: Benefits Worth Revisiting!”, Daf-Mag.fr) require paying the exercise price, in the hope that it remains higher than the share’s value.
Reduced mandatory deductions
The portion of the capital gain realized upon final disposal, i.e., the gain on sale, will be subject solely to a 30% flat tax, unlike wages, which are subject to mandatory deductions for earned income: namely income tax at the progressive rate up to a marginal rate of 49% (marginal rate of 45% + 3% to 4% CEHR), and social security contributions of 30% (12.8% tax + 17.2% CSG).
Regarding social security contributions, the advantage of AGAs is a reduced rate and a tax base limited to the social security gain alone, amounting to approximately 22% for the employee and 40 to 45% for the employer.
On the acquisition gain, the progressive income tax scale applies up to a marginal rate of 45%, which is the same tax treatment as for SOPs and AGAs, but with an advantage for AGAs thanks to a 50% deduction (up to €300,000 or €500,000 upon retirement), compared to stock options taxed at 100% (without any deduction).
A flat tax of 30% applies to the capital gain (the difference between the sale price and the value of the shares at acquisition) (12.8% tax + 17.2% CSG). In terms of social security contributions, the advantage of AGAs is a reduced rate and a tax base limited to the capital gain alone. On the issuer’s side, a 30% contribution is required, which is refundable if the shares are not ultimately acquired. However, SMEs (fewer than 250 employees and revenue under €50 million or total assets under €43 million) that have not distributed dividends are exempt from this contribution up to the annual PASS threshold of €45,000. This exemption is an advantage for “democratic” AGAs, those established at the start of operations, or for dedicated “project-based profit-sharing” companies.
For employees, there are no social security contributions on capital gains up to €300,000, followed by a 10% rate on amounts above that threshold. Thus, for an issuing company in its early stages of operation, with a still relatively low enterprise value, the capital gain will necessarily be limited, and consequently so will the related tax and social security levies.
Tax deferral in the event of issuer restructuring
Tax neutrality, i.e., tax deferral on the exchange gain resulting from corporate restructuring (merger, spin-off, public offering) and balance sheet restructuring transactions (consolidation or division of shares), even though these interim transactions (involving bonus shares) on the capital are treated as a sale, triggering a capital gain that is normally taxable. Conversely, in the case of a contribution, tax deferral applies if and only if the contribution is made to a company consolidating the securities of all beneficiaries (ManCo).
Grant limits (eligible share capital) raised
The 2023 Value-Sharing Act(2) raises the percentage limits for company shares under employee share ownership plans (ESOPs):
– 15% instead of 10% for large companies and mid-sized companies;
– 20% instead of 15% for small and medium-sized enterprises (SMEs);
– 30% (new ceiling) when AGAs cover at least 50% of employees representing 25% of the total payroll;
– 40% instead of 30% when the allocation is deemed “democratic” (benefiting all employees).
Furthermore, while the individual cap of 10% of AGAs for each employee or corporate officer remains in place, only company shares held directly for more than seven years will now be taken into account. This allows the scheme to be replenished over the medium term.
Furthermore, shares not admitted to a regulated market may be allocated to chairpersons, chief executive officers, deputy chief executive officers, members of the executive board, or the managing director.
Finally, unlisted companies(3) may grant shares to corporate officers of companies in which they hold, directly or indirectly, at least 10% of the capital or voting rights. A group incentive policy, via AGAs, is therefore possible.
Risk of a “management package”?
The new “management package” regime(4) provides for a hybrid tax regime on capital gains from the sale of securities acquired by employees or executives, including employee stock ownership plans such as free shares.
This hybrid regime applies on the condition that such capital gains are treated as compensation for the employee or executive functions performed within the issuer, and not as a result of investor status. This investor status, in the sense of capital investment involving risk-taking, will obviously be irrelevant for free shares, which are, by definition, granted without consideration.
However, this risk of lacking investor status(5) is assessed in light of the conditions for realizing the future capital gain. These conditions, often established from the outset, will result from future liquidity determined in particular by the achievement of performance levels (of the company or of the investment made by other investors), or the obligation imposed on the employee/executive to comply with certain contractual provisions, such as a non-compete clause, an obligation of loyalty and exclusivity, the non-transferability of securities, restrictions on the conditions for the sale of securities, or a promise to sell or purchase securities in the event of termination of employment or a breach of their commitments.
(1) The rules of the AGA plan may allow for the retention of shares that have already vested (definitive acquisition) but have not yet been exercised, in the event of termination of the employment contract, until the employee leaves the company.
(2) Article 17 of Law No. 2023-1107, in effect since December 1, 2023, intended to increase employees’ purchasing power by further linking their compensation to the company’s performance.
(3) New paragraph 3, inserted into Article L 225-197-1 II of the Commercial Code.
(4) Article 163 Bis H of the General Tax Code legalizing and securing the management package regime derived from Article 93 of the 2025 Finance Act.
(5) Bofip BOI-RSA-ES-20-60, July 23, 2025, No. 190.
