The free allocation of shares as an operation carried out on the share capital of a company
The free allocation of shares is an operation carried out on the share capital of a company allowing it to issue shares to its employees or its managers without financial compensation.
This operation, aimed at motivating and retaining employees and relevant corporate officers, allows them to benefit from additional remuneration and to become shareholders of the company free of charge.
In accordance with the provisions of Article L.225-197-1, I-al. 1 of the Commercial Code , it is exclusively the responsibility of the extraordinary general meeting, after having taken note of the report of the board of directors or the management board and the special report of the company's auditors or an auditor appointed for this purpose, to authorise the board of directors or the management board to proceed with a free allocation of existing or to be issued shares.
It is at the end of the extraordinary general meeting that the board of directors or the management board will be able to meet in order to determine the identity of the beneficiaries of the free shares, and to set the conditions and criteria for the allocation of said shares.
The opinion of the legal committee of the National Association of Corporations
The legal committee of the National Association of Joint-Stock Companies (Ansa), in an opinion no. 20-040 dated November 4, 2020, reminded everyone of the obligation to respect the principle of hierarchical organization of powers between the different corporate bodies during this operation.
Failure to comply with this hierarchical organization could result in the Urssaf and tax administration services reclassifying the free share allocation operation as a salary supplement.
The tax authorities could subject the salary supplement received to the progressive income tax scale without application of any deduction, and the Urssaf could also demand payment of employer and employee contributions relating to said supplement.
Furthermore, the majority of the legal committee considers that these provisions are also applicable to the simplified joint-stock company and give the administrative body, namely the chairman or the managing director, the power to set the conditions for the free allocation of shares.
Despite the flexibility of the regime applicable to the simplified joint-stock company, the committee's opinion tends to warn the partners of said companies of the risk incurred by the company if it exempts itself from the mandatory requirements of Article L.225-197-1, I-al. 1 of the Commercial Code.
However, if the articles of association of the simplified joint-stock company provided that the free allocation of shares would be determined by the shareholders as a whole, this clause could be considered by third parties as a clause deemed unwritten.
