Management package lawyer in Paris: exit an LBO and keep your share value.

A management package is the set of shares and rights offered to the managers and key executives of a company acquired by a fund, most often in an LBO. It may include ordinary shares, warrants, bonus shares or preference shares carrying special rights defined by the articles of association (Article L. 228-11 of the French Commercial Code). The manager generally invests alongside the fund, directly or through a company that groups the executives, and then waits for the final sale to realise their gain. The terms of that exit are written in from the outset, in the shareholders' agreement and the articles of association: promises to sell in the event of departure, price formulas, the vesting schedule, and tag-along or drag-along clauses. The right time to consult is before signing, while these clauses can still be negotiated, and then at each event that triggers them: removal, dismissal, resignation, refinancing or sale. The firm then examines the documentation as a whole, because the value actually received depends as much on the buyback price provided for as on the tax regime applicable to the gain. Reading a single clause in isolation, without the price formula or the schedule, often leads to an inaccurate assessment of the manager's position.

Most LBO shareholders' agreements provide that a manager who ceases their duties promises to transfer their shares to the fund, to the other shareholders or to the company. This unilateral promise gives the beneficiary the right to opt for the sale, whose essential terms are already determined, without any new consent from the manager being necessary (Article 1124 of the French Civil Code). The price then depends on the cause of the departure and its date: a departure characterised as good leaver gives rise to the price that the agreement attaches to it, often more favourable but sometimes discounted, whereas a departure characterised as bad leaver entails a discount, sometimes down to nominal value. The Paris Court of Appeal thus upheld a promise under which the price varied according to length of service, noting that "the longer the manager stays in the company, the better the price at which they sell their shares if the option is exercised" (our translation) (CA Paris, pôle 5 ch. 8, 18 October 2024, No. 22/09370). Before any reply to the beneficiary, the firm checks the definition of departure, the option exercise period, the price formula and the characterisation the investor intends to rely on. A removal without misconduct, a disputed dismissal or a resignation for illness do not produce the same effects, depending on how the agreement is drafted.

It can sharply reduce the buyback price, but its validity depends on its purpose and on the manager's status. Where the manager is also an employee, Article L. 1331-2 of the French Labour Code prohibits fines and other pecuniary sanctions and deems any contrary provision unwritten. The Paris Court of Appeal applied that provision to a founder-employee compelled to transfer his or her shares at nominal value after a dismissal for gross misconduct: it held that the exercise of the promise "amounts to a pecuniary sanction, the employee being dispossessed, at a derisory price, of the shares of the company he or she had created" (our translation) (CA Paris, pôle 5 ch. 9, 12 May 2022, No. 20/05597). The clause was deemed unwritten and the return of the shares was upheld. That outcome turned on specific facts: a forced transfer reserved, in the case of dismissal, for gross or wilful misconduct alone, a price unrelated to the value, and a departure less than a year after entry. It does not automatically extend to a corporate officer who is not an employee, nor to a clause that also covers departures without fault. The firm therefore compares the wording of your clause with these criteria before considering a challenge.

No, and the Court of Cassation has held so, in a way unfavourable to the employee shareholder. In the case decided in 2016, the shareholders' agreement required the employee to transfer all of his or her shares on ceasing to be an employee, and applied a coefficient of 0.5 to the value set by an expert in the event of dismissal other than for gross or wilful misconduct. The commercial chamber held that this clause "does not amount to a prohibited pecuniary sanction, in that it does not seek to penalise conduct of the employee regarded by the employer as wrongful" (our translation) (Cass. com., 7 June 2016, No. 14-17.978). The employee's appeal to the Court of Cassation was dismissed. The Court also approved the idea that the discount formed part of the overall balance of the contract, entered into in return for involving the employee in the growth of the company's value. The dividing line therefore lies in the reason for the departure: a discount that applies to all non-disciplinary dismissals is distinguishable from a sale at a derisory price reserved for misconduct. For the manager, the employment-law argument is useful only if the clause, as drafted and applied, punishes conduct that the employer regards as wrongful.

Vesting divides the manager's shares into a vested portion, bought back at the price the shareholders' agreement attaches to it, and an unvested portion, often bought back at nominal value. The vested portion increases with time spent in the company, according to a table annexed to the agreement. In the case decided by the Paris Court of Appeal in 2024, the agreement combined this schedule with a coefficient applied to the market value of the vested shares, including in the event of a legitimate departure: only 25% of the shares had vested and their value was subject to a coefficient of 0.3, but the agreement guaranteed the manager a floor price equal to the acquisition price. The manager, who was removed sixteen months after signing, argued that he or she had been misled as to the economic scope of the mechanism. The court rejected the claim of mistake, noted that the clause was clear and that the manager had taken part in the exchanges on the successive versions of the agreement, and then upheld the dismissal of the claim for nullity of the clause, the judgment being amended only on ancillary claims (CA Paris, pôle 5 ch. 8, 18 October 2024, No. 22/09370). This decision shows that the negotiation is won or lost before signing: vesting period, acceleration on a sale or on a removal without misconduct, floor price, treatment of shares arising from warrants. Afterwards, the manager must prove a specific defect, not a mere economic imbalance.

In principle, no. A unilateral promise to sell forms the contract as soon as the beneficiary exercises the option, and withdrawing the promise during the option period does not prevent the sale from being formed (Article 1124 of the French Civil Code). A manager who refuses is therefore exposed to a claim for specific performance. The Court of Cassation has quashed a court of appeal that had annulled, as contrary to the articles of association, a promise to sell contained in a shareholders' agreement in favour of an investor. It recalled that the nullity under Article L. 227-15 of the French Commercial Code applies only to freely agreed transfers and that "the nullity it provides for is intended solely to penalise breach of any clause in the articles of association relating to the freely agreed transfer of shares by their holder" (our translation) (Cass. com., 21 June 2023, No. 21-25.952). The case was sent back to be heard again. For the manager, the useful discussion concerns the terms of the promise rather than its principle: whether the triggering event has actually occurred, compliance with the time limit and form of the notification, accuracy of the calculated price, and characterisation of the departure. The firm checks these points before any written reply, because an acquiescence or a silence may later be used against the manager.

The price of a sale must be determined or determinable by the parties (Article 1591 of the French Civil Code), and it may be left to the valuation of a third party (Article 1592 of the French Civil Code). Where the law refers to Article 1843-4 of the French Civil Code, the disputed value is set by an expert appointed by the parties or, failing agreement, by the president of the court ruling under the accelerated procedure on the merits. That expert must apply the valuation rules laid down in the articles of association or in any agreement binding the parties. The Court of Cassation reiterated this in 2026: "the appointed expert is bound to apply, where they exist, the rules and methods for determining the value laid down by the company's articles of association or by any agreement binding the parties" (our translation) (Cass. com., 16 September 2026, No. 24-22.763). In that case, which concerned an heir who had not been approved, it added that an action for payment of the price set by the expert is subject to the ordinary limitation period under Article 2224 of the French Civil Code, which runs from the filing of the report. This mechanism presupposes a statutory reference, for example for forced-transfer clauses in the articles of an SAS where no price is specified (Article L. 227-18 of the French Commercial Code), or a transfer under the articles with no determinable price; a promise in the shareholders' agreement, by contrast, falls to the third-party valuer that the parties have chosen. In all cases, the agreed formula guides the valuation. The useful challenge goes to the application of that formula: valuation date, debt taken into account, restatements and consistency with the accounts.

Yes. In a simplified joint-stock company (SAS), the articles of association may provide, on the terms they lay down, that a shareholder is required to transfer his or her shares, and may suspend that shareholder's non-pecuniary rights until the transfer (Article L. 227-16 of the French Commercial Code). Acquisition companies and companies grouping managers often use this option to organise the exclusion of an executive who leaves the group. The clause in the articles and the promise in the shareholders' agreement are not the same thing. The Court of Cassation has held that the nullity of transfers made in breach of the articles does not govern the exclusion of a shareholder, and that the exclusion clause in the articles in question did not prevent the shareholder from granting a conditional unilateral promise to sell (Cass. com., 21 June 2023, No. 21-25.952). As to price, Article 1843-4 of the French Civil Code applies where the law refers to it or where the articles provide for a transfer with no determinable price. Under the earlier wording of that provision, the Court had held that "Article 1843-4 of the Civil Code applies to transfers of corporate rights imposed by the articles of association or by the company's internal rules" (our translation) (Cass. com., 18 November 2020, No. 19-13.402). The firm therefore first checks the basis for the compelled transfer, articles or shareholders' agreement, then the procedure followed and the price rule that results from it.

Article 163 bis H of the French General Tax Code, in the version in force since 21 February 2026, sets a principle and an exception. The net gain made on shares subscribed for, acquired or allotted by employees or executives is taxed as salary where it is obtained in consideration of their duties in the issuing company or in a company of the same group. As an exception, this gain falls under the capital gains regime of Article 150-0 A of the French General Tax Code up to a limit calculated from a performance multiple. This regime requires that the shares carry a risk of losing the price paid and that they have been held for at least two years. For bonus shares, stock options and founder share warrants (BSPCE) issued under their statutory regimes, the law requires a risk of loss of the value of the shares, with no holding-period condition; the acquisition or exercise benefit specific to those regimes remains outside the gain so split. The portion of the gain that exceeds the limit is taxed under the salary income rules, in principle for the year of the sale, except for an additional price element, taxed in the year it is received, and deferral in the event of a contribution or exchange. The capital-gain portion follows the regime of Article 200 A of the French General Tax Code. The firm therefore reconstructs, security by security, the acquisition date, the price paid and the value on entry, because the calculation is made separately at each acquisition date.

The limit equals the value of the shares at their acquisition date multiplied by the performance multiple, less that same value. The multiple is three times the ratio between the actual value of the issuing company at the date of sale and its actual value at the acquisition date (Article 163 bis H of the French General Tax Code). Where the main purpose of the issuing company is to hold the managers' investments, the value used is that of the company in which they are invested. Actual value means the actual value of equity plus debts owed to shareholders and to related companies, which covers in particular the fund's bonds or current accounts. Debts arising after entry are deemed to have arisen at the acquisition date, and the exit value is increased by debts repaid during the holding period. The text states that taking these debts into account cannot raise the limit. The limit is then reduced by the dividends and capital repayments received by the manager between acquisition and sale. A manager who received distributions during the LBO therefore sees a larger share of the gain shift into salary income. The firm checks these parameters against the accounts and the financing documents, because an error in the entry value alters the whole calculation.

Two benefits must be distinguished. The net gain on sale falling under Article 163 bis H is excluded from the CSG base on employment income, including its portion taxed as salary (Article L. 136-1-1 of the French Social Security Code); that portion does, however, bear a 10% employee contribution that discharges the liability (Article L. 137-42 of the same Code). The benefit derived from the acquisition or exercise of the warrants may, for its part, fall within the contributions base where the warrants were offered in return for, or on the occasion of, work and acquired on preferential terms. In 2023 the second civil chamber held that this preferential character results from the status of the beneficiaries, their limited number and the conditions of issue and transferability of the warrants, the price paid being only an indication. It fixed the moment of social security taxation: "the event giving rise to social security contributions on this benefit is the date of the sale or realisation of the share subscription warrants" (our translation) (Cass. 2e civ., 28 September 2023, No. 21-20.685). The company's appeal to the Court of Cassation was dismissed and the reassessment upheld, including for two executives who had left the company before exercising their warrants. For bonus shares granted outside the statutory conditions, the same chamber held that the shares were definitively allotted at the end of the vesting period (Cass. 2e civ., 5 September 2024, No. 22-18.293). Article L. 242-1 of the French Social Security Code excludes from the base certain benefits referred to in the General Tax Code, subject to conditions. The firm therefore analyses the conditions of issue of your instruments before the sale, because a reassessment of the acquisition benefit may be added to income tax.

In a secondary LBO, the manager is often invited to contribute part of his or her shares to the new acquisition company. Article 163 bis H of the French General Tax Code provides, for the portion of the gain taxable as salary, a tax deferral up to the share of the gain reinvested in shares of the issuing company or of a company linked to it by a shareholding before the transaction, where the contribution or exchange falls under Article 150-0 B and is carried out in France, in another Member State of the European Union or in a State linked to France by a tax treaty providing for administrative assistance against tax fraud and evasion. The recipient company may not have as its purpose the management of the manager's or his or her family's assets, and the deferred amount must be declared. The deferral ends on the disposal, sale, buyback, repayment or cancellation of the shares received, or where the shares contributed to a company controlled by the manager undergo any of those events within three years of the contribution. It is maintained in the event of a further contribution or exchange meeting the same conditions. A balancing cash payment is permitted only if it does not exceed 10% of the nominal value of the shares received, and the corresponding portion is then taxed immediately. The structure must also reflect economic reality: the tax authority may disregard sham transactions, or those that seek the benefit of a literal application of the texts contrary to the objectives of their authors for the sole purpose of avoiding tax (Article L. 64 of the French Tax Procedure Code). The firm therefore re-reads the contribution agreement, the split between cash and shares and the new shareholders' agreement before signing.

An equity savings plan (PEA) cannot hold shares whose gain falls under Article 163 bis H of the French General Tax Code: Article L. 221-31 of the French Monetary and Financial Code expressly excludes those shares from the list of permitted holdings. A manager who was planning to put his or her shares in a PEA to defer taxation must therefore check how the instruments are characterised before any transfer. A gift does not erase the tax either. In the version in force since 21 February 2026, the text provides that where these shares are given by deed of gift or by manual gift, the net gain is determined and taxed in the donor's name for the year of the gift. The same rule applies to shares received in exchange on a contribution or on a transaction under Article 150-0 B involving those shares. A family transfer of management package shares therefore calls for a prior calculation of the tax due by the donor in the very year of the gift, using the same multiple and value parameters as on a sale. The firm also examines the approval and inalienability clauses of the shareholders' agreement, which may prohibit the transfer itself.

A manager who joins the share capital buys or subscribes for shares on the basis of information provided by the seller, the fund or the company. Where decisive information was intentionally withheld, nullity for fraudulent misrepresentation (dol) may be sought. The Court of Cassation has quashed a court of appeal that had rejected fraudulent misrepresentation by blaming the buyer for not having made enquiries, holding that these "grounds based on the transferee having been required to inquire, before the transfer, into the company's financial situation, are inadequate to exclude the existence of fraudulent concealment" (our translation) (Cass. com., 18 September 2024, No. 23-10.183). A mistake induced by fraudulent misrepresentation is always excusable (Article 1139 of the French Civil Code). This principle does not relieve the manager of the need to prove the concealment, its intentional nature and its decisive effect on his or her commitment. In an LBO, the proof comes from the data room, the business plan given to the managers, the exchanges with the fund and the representations in the deeds. The firm examines the chronology of the information received before considering an action.