Context

With 2023 marking a significant global market slowdown, many IPO candidates have suspended or postponed their plan. Only six initial public offerings (IPOs) have been successful in France in 2023, raising a total of about €300 million, representing half the number of 2022 IPOs in Paris and a small fraction of the number of IPOs undertaken in 2021. In 2022, the French Government laid out its ambition to have at least 10 French unicorns listed on the Paris stock exchange by 2025 and presented a series of measures expected to offer incentives to innovative and fast-growing companies to consider a listing in Paris and make France an attractive European financial hub.

In 2024, the bulk of this awaited reform has now been approved and enacted under French law. Some technicalities related to a full and practical implementation are still being discussed with relevant stakeholders, including the Autorité des marchés financiers (AMF) and Euronext.

Key Takeaways

• Multiple-vote share structures are now permitted for listed entities under French law: Companies contemplating an IPO in France may now introduce or maintain preferred shares granting multiple voting rights during their first admission to trading.
• Optionality of the previously mandatory retail tranche for IPOs: The AMF General Regulation abolishes the obligation for lead managers and issuers applying for admission of their shares to trading to include a minimum 10% retail tranche in the context of their IPO.
• Introduction under French law a new system allowing the creation and transfer of fractional shares: This regime will notably allow retail investors to buy fractions of a share.

Introduction of Preferred Shares Granting Multiple Voting Rights During IPO in Paris

Until now, French securities law allowed a deviation from the “One share — one vote” principle for listed entities by granting a double voting right only to loyal shareholders able to justify a holding of their registered shares in the company for a minimum of two years (unless provided otherwise in the bylaws). This led to an uneven playing field across the European Union, where nearly half the member states allow the use of multiple-vote share structures for listed entities.

Anticipating the proposed EU Listing Act, a part of a legislative package published in December 2022 aimed at improving the European capital markets, the French Parliament enacted, on June 5, 2024, a long-debated reform of the French commercial code. French companies, as well as foreign entities, contemplating an IPO in France may now introduce or maintain preferred shares granting multiple voting rights during their first admission to trading on a regulated market or a multilateral trading facility (MTF). This reform will allow founders and strategic shareholders to keep effective control of the company while raising fresh money on the financial markets and pursuing their IPO in France.

The French reform provides several restrictions with respect to the multiple-vote share structure:

• These preferred shares may be issued to and held only by one or more designated persons (individuals, such as the founders, or entities, such as main or strategic shareholders) and, as a result, may not be freely transferable.
• Although there is no ratio of maximum voting rights per share for entities applying for a listing on a regulated market such as Euronext Paris, the maximum permitted number of voting rights per share for entities applying for a listing on a MTF may not exceed a ratio of 25 voting rights per share.
• These preferred shares may remain in force only for a duration of up to 10 years following the initial listing of the company. Their validity may be extended once, for an additional duration of up to five years (subject to being approved by an extraordinary shareholders meeting; the beneficiaries of these preferred shares are not allowed to take part in the vote).
• The preferred shares are converted into ordinary shares should the company enter into judicial reorganization or liquidation proceedings.
• The multiple voting rights attached to the preferred shares are limited to one vote per share whenever the shareholders general meeting resolves on:
  1. The appointment of the statutory auditors
  2. The approval of the annual financial statements
  3. An amendment of the bylaws (other than in the event of a capital increase)
  4. The approval of related party agreements
  5. The compensation policy and compensation of corporate officers
• The bylaws of the company can also limit multiple voting rights to one vote per share in the context of a tender offer on the company.

Amendment to the AMF General Regulation Makes “Retail” Tranche Optional for IPOs

As part of this attempt to make Paris IPOs more attractive, the French Ministry of Economy and Finance  on March 27, 2024, enacted an amendment to the AMF General Regulation that abolishes the long-standing obligation of lead managers and issuers applying for their shares to trade on Euronext Paris to include a retail tranche in the context of their IPO. Formerly, this obligation implied a minimum of 10% of the offered shares to be placed with retail investors, which was applicable only in France; it had become quite burdensome and discouraging for potential issuers, making transactions more complex and longer-lasting.

This retail tranche is now only optional and will not prevent retail shareholders from purchasing securities on the secondary market. Keeping the protection of retail investors in mind, the AMF has amended its regulation slightly so that issuers wishing to target all categories of investors (in the context of an IPO on a regulated market) must ensure that in satisfying the demand from retail and institutional investors, they do not unfairly disadvantage retail investors.

The AMF will assess the practical effects and consequences of these measures over the next three years, focusing on the participation and treatment of retail investors in the context of IPOs on the regulated market of Euronext in Paris.

Other Reforms Introduced to Make France an Attractive Financial Hub

• Introduction of fractional shares: The French Parliament has authorized the government to take any regulatory measures to introduce under French law a new system allowing the creation and transfer of fractional financial securities, as well as appropriate protection rights.

  This reform will notably allow retail investors to buy a fraction of a share, such as when the market value of such share would otherwise be deemed too expensive for purchase as a whole. This will also be helpful in the context of a tender offer or a merger, where the exchange ratio is not a round number.

• Electronic consultation of corporate bodies: The June 5, 2024 reform also allows, as a general principle, the convening and holding of meetings of the board of directors, shareholders, and other securities holders by mean of telecommunication that allows for the identification of its members, unless provided otherwise by the bylaws.
• FCPR: The June 5, 2024 reform increases the ability of venture capital mutual investment funds (FCPR) to support listed companies up to a market capitalization of €500 million (previously limited at €150 million). The reform also extends the maximum lock-up period for FCPR units from 10 to 15 years.

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