A company may decide to allocate its own shares to its employees free of charge.

The beneficiary employee does not immediately become the owner of the shares. It is mandatory that a time elapses between the date of award of the shares and the date when the beneficiary employee becomes owner. This time is called vesting period.

The company fixes the length of the vesting period, but respecting the minimum legal length of one year (except in case of invalidity of the employee).

The company may also freely determine a retention period for shares. This means that the employee cannot sell the shares before the end of this period, even if he has become the owner after the end of the acquisition period.

The combination of the vesting period and the retention period may not be less than 2 years.

An employee cannot therefore resell the free shares received from his company before the expiration of 2 years from the date of award.

The award of free shares is different from other similar operations which also allow the employee to benefit from the shares of his company:

• Purchase on terms more advantageous than those on the market (stock options)
• Purchase via a capital increase reserved for employees who are members of the company savings plan
• Purchase through reserved sales, on favorable terms (discounts).

The operation may be organized for the benefit of all employees or for only part of them.

In the case of the award of free shares to the company's representatives, the listed company must fulfill at least one of the following conditions:

• The business shall award shares free of charge to all its employees and to at least 90% of all the employees of its subsidiaries
• The business shall allocate options to all its employees and to at least 90% % of all employees of its subsidiaries
• At least 90% employees of french subsidiaries are covered by a special or voluntary profit-sharing or participation agreement, and the procedures for calculating these agreements are improved before the award of the free shares
• All eligible employees of the business and at least 90% % of all eligible employees of its French subsidiaries receive an additional payment of participation or profit-sharing

The decision to award free shares to employees must be taken by an extraordinary general meeting.

The decision must specify whether the allocation is to all employees or only to some of them and which ones.

The award of shares free of charge by a company may also benefit workers who are not its direct employees but who are employed by companies belonging to the same group.

These workers are:

• Employees of businesses whose company allocating the free shares holds directly or indirectly at least 10% capital or social rights
• Employees of businesses who hold directly or indirectly at least 10% the capital or social rights of the company awarding the free shares
• Employees of businesses of which at least 50% % of the capital or of the social rights are held directly or indirectly by a company which in turn holds directly or indirectly at least 50% of the capital of the company which awards the free shares

The total number of shares awarded free of charge is maximum 15% social capital.

To calculate this percentage, the following shares must be withdrawn from the share capital:

• Shares which were awarded free of charge at a previous general meeting and of which the beneficiaries have not yet become final owners (current acquisition period)
• Actions which have been awarded free of charge at a previous general meeting and whose mandatory retention period has ended

In small and medium-sized companies, if the award relates only to certain categories of employee (for example, employees whose remuneration does not exceed a certain amount), the total number of shares awarded free of charge may be up to 20% social capital.

If the award concerns a significant group of employees, the total number of shares awarded free of charge may be up to 30% social capital. A significant group of employees is a group of employees who meet the following 2 criteria:

• Employees whose wages represent at least 25% of the total gross salaries paid in the last financial year of the company
• Employees whose total number represents at least 50% company staff

If the award concerns all employees of the company, the total number of shares awarded free of charge may be up to 40% social capital.

The allocation of the free shares by the assembly is provisional.

The award of the free shares becomes final after a certain period has elapsed.

This time is called vesting period.

The duration of the acquisition period is fixed by the general meeting, but the law provides that it must be at least 1 year.

The special general meeting may also provide for a mandatory period for the retention of free shares.

The mandatory retention period shall run from the end of the acquisition period.

The cumulative duration of the vesting period and the retention period may not be less than 2 years.

The shares can therefore be sold at the earliest 2 years after the award by the general meeting.

The principal income from the award of the free shares is the acquisition gain ”. It corresponds to the value of the shares on the market at the time when the award becomes final, i.e. at the end of the acquisition period.

The sale of the free shares may allow the beneficiary to generate a second income, called the “gain from the transfer of securities”. This second income corresponds to the increase in the value of the shares between the end of the acquisition period and the day of the sale.

These 2 incomes are taxed after the sale of the shares. They must be reported with income for the year of the sale of the shares.

The applicable tax regime the income from the sale of the free shares varies according to the final date of acquisition of the shares and the date of resale of the shares.