After 3 months of parliamentary debates, law no. 2024-537 aimed at increasing business financing and France’s attractiveness as a financial center was adopted on June 13, 2024 (the “Attractiveness Law”).
The pursuit of this financial attractiveness is explored in three directions:
- For companies, by seeking to develop their financing capacity.
- For investors, by expanding the scope of their investments.
- For innovation, by offering new investment opportunities in the future.
The implementation of these new provisions, however, requires the publication of application decrees in the coming months which will specify the modalities of the measures provided.
Encouraging companies to seek market financing
The Attractiveness Law provides several measures designed to offer French companies a favorable and protective framework that encourages them to seek financing on the financial markets.
A key measure made necessary due to the competition from other European financial centers already allowing it, now offers listed companies the possibility to issue multiple voting shares during an initial public offering. While this was already possible for joint-stock companies under strict conditions, including time limits, it excluded companies admitted to a regulated market or a Multilateral Trading Facility (“MTF”). In these financial instrument markets, the principle of proportionality of voting rights to the share capital represented had only one exception, which was double voting preference shares.
This new possibility is only offered during an initial admission to a regulated market or an MTF, and such multiple voting shares can only be issued for the benefit of specifically designated persons. Additionally, the new multiple voting shares are issued for a determined period: at the end of their term, they are to be automatically converted into ordinary shares (for a maximum of 10 years, renewable once for a period not exceeding 5 years).
This first measure particularly targets founders of innovative (start-up) or high-potential companies who wish to retain control of their company but need significant fundraising to finance their industrialization and, more broadly, their development projects.
The new law also simplifies the procedure for setting the issue price in the event of a capital increase by removing the preferential subscription right for companies whose securities are admitted to trading on a regulated market. Until now, the issue price had to be at least equal to the weighted average of the prices of the last three trading sessions, with a maximum discount of 10% and after consulting the AMF. It is now provided that the issue price can be freely set, provided that an additional report, certified by the statutory auditor and describing the conditions of the operation, is issued.
By this, the legislator again expresses the will to simplify processes to encourage companies to seek market financing.
Finally, one measure worth mentioning is the increase in the maximum limit to proceed with a capital increase by removing the preferential subscription right in a private placement (i.e., a public offer reserved for a small circle). This limit, which was 20% of the share capital per year, is raised to 30%.
Expanding existing investment channels
The legislator also took note of the important role played by collective investment schemes (“OPC”) in business financing. Thus, several provisions expand the scope of eligible investments.
In this regard, risk capital mutual funds (“FCPR”) can now assist listed companies up to a market capitalization of EUR 500 million (compared to EUR 150 million previously). For FCPRs, the lock-up period for holders of shares, which means the prohibition to request the redemption of shares (exit from the fund), is extended to 15 years (compared to 10 previously).
This measure aims at adapting the investment to market specifics. FCPRs especially are intended to invest in start-ups, SMEs, and innovative companies with particularly high financing needs and long investment durations.
Similarly, the rules regarding securities eligible for the equity savings plan for financing SMEs (“PEA-PME”) have been relaxed. Companies whose securities are admitted to trading on a regulated market or an MTS, with a market capitalization which is less than EUR 2 billion (or has been at the end of at least one of the last four calendar years), are now eligible for a PEA-PME. The conditions were previously much more restrictive as (i) the market capitalization had to be less than EUR 1 billion, (ii) the number of employees had to be less than 5,000, and (iii) the annual turnover had to be equal or less than EUR 1.5 billion (or a total balance sheet not exceeding EUR 2 billion based on the consolidated accounts of the issuing company).
Opening investment perspectives
The Attractivity Law introduces the remarkable innovation of “splitting of financial instruments” into French law. This notion, well-known in the United States and highly popular among both individuals and professionals, was impossible under French law because of factors such as the principle of indivisibility of securities for the issuing company. By enabling the government to create a regime for the splitting of financial instruments, the law challenges this classic principle enshrined in the commercial code.
In practice, splitting securities allows the division of a security into several units of lower value. For example, a share with a nominal value of EUR 1,000 could be divided into 100 share fractions, bearing a nominal value of EUR 10 each. The splitting of securities is a tool for “democratizing” investment, aiming to allow a broader public to invest in companies with the highest ratings (e.g., companies in the high tech and luxury sectors).
For the effective use of financial instrument splitting, the Euronext market company will need to adapt its procedures and rules. Otherwise, the existing technical limits will make the regime entirely inoperative, as it is currently not possible to place an order in the market for anything other than a whole security. The technical and IT systems of all market order chain links will thus need to evolve accordingly.
Finally, the Government is also entitled to harmonize and simplify the provisions related to the social life of OPCs, modernize their governance, and reform their operations framework.
At this stage, the impact of this reform is difficult to assess, and it will be necessary to follow the government’s work to determine if significant changes should be anticipated by market players, especially portfolio management companies.