Management Package & Carried Interest in France 2026: LBO and Private Equity Tax Structuring

1. Background and stakes

A management package refers to the set of financial and legal instruments allowing executives and key managers of a company under LBO or owned by a private equity fund to share in the value created at exit (sale, IPO, refinancing). Carried interest targets the management teams of the funds themselves (general partners), remunerated on the outperformance of the vehicle.

The structuring of these schemes in 2026 is governed by an exceptionally strict body of tax rules and case law, following the French Council of State rulings of 13 July 2021 (CE, 13 July 2021, no. 437498, Wendel) and several subsequent decisions (CE, 4 October 2023; Cass. com., 2024). Tax litigation surrounding management packages has become one of the most active areas of executive taxation in France.

2. Legal framework of management packages

2.1 Instruments used

Several legal vehicles can support a management package:

Instrument	Legal regime	Main advantage	Tax risk
Ordinary shares	Art. L. 225-127 Com. Code	Simplicity	Standard capital gains tax
Preferred shares (ADP)	Art. L. 228-11 Com. Code	Specific financial rights	Possible reclassification if abnormal advantage
BSA (warrants)	Art. L. 228-91 Com. Code	Leverage effect	Reclassified as salary if granted free
BSPCE	Art. 163 bis G Tax Code	Favorable taxation	Reserved for eligible SMEs
Free shares (AGA)	Art. L. 225-197-1 Com. Code	Secure legal framework	Cap and conditions
Sweet equity / ratchet	Sui generis contract	Hyper-leverage	Almost systematic reclassification if mis-calibrated

2.2 Typical architecture of an LBO management package

In a classic LBO transaction, the management package is built around three layers:

Layer 1 — personal investment: managers acquire securities (ordinary or preferred shares) at market value, financing this investment from their own funds or via a bank loan;
Layer 2 — leveraged instruments: BSA, convertible ADP or warrants increasing the share in case of an exit above a performance threshold (hurdle);
Layer 3 — vesting and leaver provisions: presence conditions and good/bad leaver clauses governing the loss of rights upon departure.

3. Tax treatment of management packages — state of the law in 2026

3.1 The post-Wendel doctrine

The Wendel ruling (CE, 13 July 2021, no. 437498) established that a manager's gain on their securities is taxable as salary when three cumulative conditions are met:

The instrument was granted by reason of duties performed;
The manager benefited from an advantage compared to an ordinary investor (preferential price, guaranteed gain, subsidized financing);
The gain is directly linked to the performance of the employer company.

Otherwise, the gain remains taxable as a capital gain (PFU 30% or progressive scale option + 17.2% social levies).

3.2 Recent rulings (2023-2024)

CE, 4 October 2023, no. 466244: confirmation of the salary treatment of a gain on ADP granted without significant personal investment;
Cass. com., 11 October 2023: clarification on the market valuation of BSA where a ratchet mechanism is in place;
CE, 8 December 2023: a 10% discount from market value remains acceptable if justified by transferability constraints.

3.3 Arbitrage between PFU and salary treatment

Regime	Total rate	Employee social charges	Employer charges
Capital gain (PFU)	30%	None (17.2% social levies included)	0%
Salary	up to 45% IT + 22% social	22% employee	~42% employer

The total tax wedge gap can reach 40 percentage points between the two regimes, which justifies the extreme attention paid to structuring.

4. Legal protection of a management package

4.1 The six protection conditions

To preserve the capital gains regime, six conditions must be met:

Acquisition price at market value validated by an independent valuer (documented expert report);
Real and significant personal investment by the manager (no full financing by the company);
Effective risk of loss of the invested capital;
No yield guarantee or guaranteed buyback mechanism;
Reasonable vesting (typically 4 to 5 years) without leonine clauses;
Complete contractual documentation (term sheet, shareholders' agreement, articles, investment agreement).

4.2 Essential contractual clauses

Good leaver / bad leaver: buyback conditions for the manager's securities upon departure;
Vesting and cliff: progressive acquisition of rights (linear or by tranches);
Anti-dilution clauses: protection against excessive dilution;
Drag along / tag along: framework for forced sales and joint sales;
Non-compete and non-solicitation: post-exit framework.

5. Carried interest of management teams

5.1 Tax regime of carried interest

Since the 2009 Finance Act (art. 80 quindecies Tax Code), carried interest received by management teams of FCPR, FPCI and SLP funds benefits from a specific tax regime under strict conditions:

Minimum investment of 1% of the fund by the team (or 0.25% for funds > €1bn);
Holding period of at least 5 years;
Minimum hurdle of 8% IRR per year to trigger carried interest.

If these conditions are met, the carried is taxed as a capital gain (PFU 30%). Otherwise, it is reclassified as salary (up to 45% IT + 22% social levies + employer charges).

5.2 2024-2026 developments

The 2024 Finance Act strengthened reporting obligations and clarified eligibility conditions for foreign funds. The revised AIFM Directive (currently being transposed) imposes new transparency rules on team remuneration.

6. Standard 2026 schemes

6.1 Mid-cap LBO (company valued €50-200m)

Manager investment: 0.5 to 2% of capital;
Instruments: 30-50% ordinary shares, 50-70% BSA ratchet;
Vesting: 4 years with 1-year cliff;
Hurdle: 15-20% IRR;
Target multiple: 2.5x to 3x the managers' initial investment in case of a successful exit.

6.2 Build-up / growth capital

Reverse ratchet mechanism: the managers' share increases with the exit multiple;
Mandatory co-investment clauses during build-ups.

7. Pre-deal audit and litigation

The lawyer must conduct a systematic pre-deal audit:

Documented independent valuation;
Tax memorandum covering the six protection conditions;
Validation by tax ruling where possible (art. L. 80 B Tax Procedure Code);
Anticipation of documentation for a possible tax audit.

In litigation, the defense is built around demonstrating the real nature of the investment and the absence of abnormal advantage.

8. Sources and references

French Commercial Code, art. L. 225-127, L. 228-11, L. 228-91, L. 225-197-1
French General Tax Code, art. 80 quindecies, art. 163 bis G, art. 150-0 A
CE, 13 July 2021, no. 437498, Wendel
CE, 4 October 2023, no. 466244
CE, 8 December 2023
Cass. com., 11 October 2023
French Tax Procedure Code, art. L. 80 B (tax ruling)
2024 Finance Act
Revised AIFM Directive (in transposition)

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Management Package & Carried Interest France 2026: LBO and Private Equity Tax Structuring