Usufruct of securities is the right to use shares and collect their income (dividends) without owning the capital. In a corporate governance context, it raises a fundamental question: who votes — the usufructuary or the bare owner? Under French law (Article L. 225-110 of the Commercial Code), the usufructuary votes at ordinary general assemblies (dividend decisions, accounts approval) and the bare owner at extraordinary assemblies (capital changes, mergers, amendments to the articles). However, the articles may modify this allocation, giving all voting rights to one party.

The valuation of usufruct of securities for tax purposes follows the scale of Article 669 CGI based on the usufructuary's age. For financial purposes (transfer pricing, PPA, financial instruments valuation), the economic value of the usufruct is computed by discounting the expected dividend stream over the estimated usufruct duration, using the appropriate discount rate. This approach can produce valuations significantly different from the legal scale, creating potential disputes with tax authorities in France and Switzerland.

Usufruct of securities is commonly used in LBO structures where a holding company holds the bare ownership of operating company shares while a related entity retains usufruct — allowing dividend flows to the usufruct holder while keeping capital appreciation in the bare ownership entity. This structure requires careful analysis in financial due diligence to correctly assess the economic rights actually transferred in an acquisition.

At Hectelion, we value usufruct of securities for tax, transactional and dispute resolution purposes in our valuation and due diligence mandates.