Sub-paragraph 3: Innovation mutual funds

I. - Innovation mutual funds are venture capital mutual funds at least 70% of whose assets consist of financial securities, limited liability company shares and current account advances, as defined in I and 1° of II of article L. 214-28, which grant subscribers of equity securities only the rights resulting from their status as shareholders or partners, to the exclusion of any other consideration, in particular in the form of a capital guarantee, preferential rates or priority access to goods produced or services rendered by the company, and which are issued by companies having their registered office in a Member State of the European Union or in another State party to the Agreement on the European Economic Area which has entered into an administrative assistance agreement with France with a view to combating tax evasion and avoidance, which are subject to corporation tax under the conditions of ordinary law or would be subject to corporation tax under the same conditions if the activity were carried out in France, the majority of the capital of which is not held, directly or indirectly, by one or more legal entities that do not deal at arm's length with another legal entity within the meaning of VI, which meet the conditions defined in c, e and i of 1 bis of I of Article 885-0 V bis of the French General Tax Code as it stood on 31 December 2017, which have not repaid all or part of any contributions over the past twelve months and which meet the following conditions:

1° At the time of the fund's initial investment :

a) Be a small and medium-sized enterprise within the meaning of Annex I to Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty ;

b) Not have securities admitted to trading on a French or foreign regulated market or multilateral trading facility within the meaning of Articles L. 421-1 or L. 424-1, unless that market is a multilateral trading facility where the majority of instruments admitted to trading are issued by small and medium-sized enterprises ;

c) Meet one of the following two conditions:

- to have carried out research expenditure as defined in a to g and j and k of II of article 244 quater B of the French General Tax Code, representing at least 10% of operating expenses for at least one of the three financial years preceding that in which the subscription takes place.

For companies that have never closed a financial year, research expenditure is estimated for the financial year running at the date of subscription and certified by a chartered accountant or auditor;

- be able to demonstrate that it is developing or will develop in the foreseeable future products, services or processes that are new or substantially improved in relation to the state of the art in the sector in question and which present a risk of technological or industrial failure. This assessment is carried out for a period of three years by a body responsible for supporting innovation and designated by decree;

d) Fulfil one of the following three conditions:

- not operating in any market ;

- it has been operating in any market for less than ten years since its first commercial sale. If the company has called on the services of the organisation mentioned in the last paragraph of c of this 1°, the latter is also responsible for defining the date of the first commercial sale. Failing this, the date is defined as in the third paragraph of d of 1 bis of I of article 885-0 V bis of the General Tax Code as it stood on 31 December 2017;

- have an initial investment requirement for risk financing which, on the basis of a business plan drawn up with a view to entering a new geographical or product market, is greater than 50% of its average annual sales over the previous five years;

2° At the time of each investment by the fund in the company:

(a) Not qualify as a company in difficulty within the meaning of Article 2(18) of the aforementioned Commission Regulation (EU) No 651/2014 of 17 June 2014;

b) Comply with the condition mentioned in j of 1 bis of the I of Article 885-0 V bis of the French General Tax Code in the version in force on 31 December 2017.

The provisions of V of Article L. 214-28 apply under the same conditions to innovation mutual funds, subject to their own 70% investment quota.

II. - When the securities of a company which initially complies with the conditions laid down in I of this article held by a fonds commun de placement dans l'innovation are, subsequent to the initial investment, admitted to trading on a regulated market or a French or foreign multilateral trading facility, they continue to be taken into account in the 70% investment quota for a period of five years from their admission.

III. - A. - In order to meet the quota referred to in I, the fund's assets comprise

1° Securities or units received as consideration for capital subscriptions, bonds whose issue contract provides for mandatory redemption in shares, securities received as consideration for converted bonds, convertible bonds or current account advances from companies meeting the conditions defined in I. Securities or units received as consideration for capital subscriptions, securities received as redemption of bonds and securities received as consideration for converted bonds must represent at least 40% of the fund's assets;

2° Securities or units in a company that have been redeemed if one of the following two conditions is met:

a) Their value is less than the value of the securities or units of this company mentioned in 1° of this A held by the fund;

b) When the securities or units are redeemed, the fund undertakes to subscribe, during their lifetime, to securities or units mentioned in 1° of this A, the issue of which is provided for in the business plan, for a value at least equivalent to the redemption.

The fulfilment of this condition is assessed over the lifetime of the fund.

B. - Securities or units acquired in connection with follow-up investments in companies whose securities or units are already present in the fund's assets under the quota mentioned in I of this article may be counted towards this quota if the conditions set out in Article 21(6) of the aforementioned Commission Regulation (EU) no. 651/2014 of 17 June 2014 are met.

IV. - 1. The equity securities mentioned in I of Article L. 214-28 and, within the limit of 20% of the fund's assets, in III of the same Article L. 214-28 are also eligible for the investment quota mentioned in I of this article when they are issued by companies that meet the following conditions:

a) The company meets the conditions mentioned in I. The condition set out in the last paragraph of c of 1 of I is assessed by the body mentioned in the same last paragraph at the level of the company, with regard to its activity and that of its subsidiaries mentioned in c, under conditions set by decree;

b) The company's corporate purpose is to hold equity interests that meet the conditions set out in c and may carry on an industrial or commercial activity within the meaning of Article 34 of the General Tax Code;

c) The company exclusively holds equity interests representing at least 75% of the capital of companies :

- whose securities are of the type mentioned in I and III of article L. 214-28 ;

- which meet the conditions set out in the first paragraph of I, with the exception of those relating to the number of employees and capital ;

- which meet the conditions set out in I, II and III of this article or whose purpose is to carry on an industrial or commercial activity within the meaning of Article 34 of the General Tax Code;

d) The company holds at least one stake in a company mentioned in c which fulfils the conditions set out in I, II and III of this article.

2. A Conseil d'Etat decree specifies the methods for calculating the condition relating to the number of employees provided for in I for the company mentioned in 1 and for assessing the condition of exclusivity of shareholdings provided for in c of this 1.

V. - The conditions relating to the number of employees and the recognition, by an organisation responsible for supporting innovation or on the basis of their cumulative research expenditure, of the innovative nature of companies whose securities are included in the assets of an innovation investment fund are assessed at the time of the first subscription or acquisition of these securities by this fund.

In the event of a sale by a parent company mentioned in the first paragraph of IV of shares in subsidiaries mentioned in d of the same IV that calls into question the 75% holding threshold, the shares in this parent company cease to be taken into account in the 70% investment quota.

VI. - For the purposes of assessing the dependency links between two companies under I, these links are deemed to exist:

1° When one company directly or through an intermediary holds the majority of the share capital of the other company or exercises de facto decision-making power in the other company;

2° Or when both companies are controlled by the same third party under the conditions defined in the previous paragraph.

VII. - The Autorité des marchés financiers shall refuse to approve the formation of a fonds commun de placement dans l'innovation if, over a period set by decree, each of the fonds communs de placement dans l'innovation and the fonds d'investissement de proximité formed by the management company concerned has subscriptions totalling less than a threshold set by decree and if all the private equity funds referred to in articles L. 214-27 et seq. and the professional investment funds referred to in article L. 214-159 managed by the management company represent a total amount of assets under management of less than a threshold set by decree (1).