In the fundraising landscape, BSA-AIR (Bon de Souscription d’Actions – share subscription warrant) has become a flexible and fast tool, widely used for early-stage start-up financing. Review of recent case law by our law firm.
Inspired by the U.S. “SAFE” mechanism (Simple Agreement for Future Equity), the BSA-AIR allows an investor to subscribe to a warrant for future shares in the company, without requiring a valuation at the time of investment.
Although it involves some risk for investors, BSA-AIR makes it possible to delay discussions on company valuation, which are typically impracticable during the earliest phases of growth.
At the crossroads of corporate and financial law, BSA-AIR mechanism continues, ten years after its introduction in France, to raise complex legal questions. Below is a selection of case law from the past 18 months. In the absence of any ruling from the French Supreme Court (Cour de cassation), we have chosen four decisions from first and second instance courts that shed light on best practices and drafting considerations.
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This ruling underscores the boundaries of an issuer’s duty to inform BSA-AIR holders, who only acquire shareholder status upon conversion. When sharing information involving third parties, issuers must take particular caution to avoid engaging the liability of the company or its officers.
In the case at hand, the former CEO of a French simplified joint-stock company (société par action simplifiée – SAS) challenged his dismissal, claiming it was abusive. He argued that the chairman should not have informed BSA-AIR holders of the planned dismissal and its reasons (including disputes and “irregular expenses”) before the general meeting scheduled to decide on the dismissal. According to him, this disclosure to non-shareholders involved confidential governance information, anticipated the vote 18 days ahead, and breached the company’s duty of loyalty to its executive.
The Court of Appeal confirmed that BSA-AIR holders were not entitled to the same information as shareholders. The communication, which made the dismissal and its context public, was deemed vexatious. The company’s argument based on an information duty under the BSA-AIR agreement was rejected: that duty only concerned risks to the company’s activity or prospects, which was not the case here. Consequently, the dismissal was held abusive, and the company was ordered to compensate the former executive.
Practical takeaways:
The occurrence—or non-occurrence—of trigger events allowing BSA-AIR exercise can create tensions with shareholders and raise questions about officers’ liability. This decision illustrates such issues.
In the case at hand, BSA-AIR could be exercised either upon one of four trigger events or after four years, with less favourable terms in the latter case. No event occurred, and the warrants were exercised at the minimum valuation set in the BSA-AIR plan.
In this context, a holder accused the company’s chairman of failing to convene a general meeting to approve a capital increase of at least €1 million (a trigger event). He claimed this was mismanagement and requested a judicial expert review.
The Court of Appeal rejected the claim, holding that approving a capital increase falls under shareholder authority, not management duties. It also noted that the claimant, himself a shareholder, could have convened the meeting but did not. As there was no irregularity or breach of corporate interest, the claim was dismissed as unfounded.
Practical takeaways:
This ruling highlights a critical risk associated with BSA-AIR: founders’ liability when they fail to fulfill their duty to provide accurate information about the company’s situation. In this case, a false statement deemed decisive for the investor’s consent led the court to award damages for loss of opportunity.
At first instance, the court found that the representatives of a company issuing BSA-AIR had breached their duty to inform the investor. When the warrants were subscribed, they stated that the company was not insolvent, although it had been for four months. Moreover, the documents provided did not enable the investor to assess the company’s financial position independently of the founders’ statements.
The founders argued that the investor, as a sophisticated party, had a duty to investigate and that his ignorance was illegitimate. The court rejected this argument:
The court concluded that the founders breached their duty to inform toward the investor and provided false information, incurring liability.
Practical takeaways:
The court held that legal suits seeking reimbursement of an AIR investment fall under the jurisdiction of the Commercial Court. This is assessed based on the investor’s role in the functioning of a commercial company, not merely on their status as a non-trader.
In this case, an individual investor sought reimbursement of his contribution, arguing that, as he was not a shareholder, he could bring the matter before a civil court. The judge rejected this argument and declared the Commercial Court competent.
Indeed, a dispute concerning the subscription of BSA-AIR, granting access to the capital of a commercial company, constitutes a matter relating to a commercial company under Article L.721-3 of the French Commercial Code.
Practical takeaways:
