Employee Shareholdings in a Company in Germany 

To determine which form of participation is suitable for your company, it is essential to conduct a comprehensive analysis beforehand. First of all, it is important to clarify all fundamental questions. What do you want to achieve through the participation, how should your company be structured in the long term and, how can your wishes be legally implemented?  

The German law firm Schlun & Elseven supports you in clarifying all legal issues related to the establishment of a company and the implementation of a suitable model for employee participation. Our legal team offers professional support to interested companies – both in the development of a suitable business concept and in the concrete implementation of the participation model under consideration in your company. Our lawyers for German contract law ensure that the relevant contracts safeguard your interests and meet all formal requirements so that you are always on the safe side. 

In practice, the following employee participation models have become established: 

Direct participation is one of the classic methods of employee participation. Direct participation can be granted in the form of shares (e.g., in an AG, Stock Corporation) or business shares (e.g., in a GmbH, Company with limited liability). These are regular shares or business shares (also known as employee shares or employee business shares).  

Silent partnerships are characterised by the fact that the employee makes an asset contribution to the company. This type of participation is possible for any commercial enterprise. Silent partnerships are regulated in the German Commercial Code (HGB) in Section 230. They establish a genuine corporate relationship. Through its financial contribution in the form of the asset contribution, the employee also receives a proportionate share of the profits. The extent to which the silent partner also participates in losses depends on the specific contractual agreement. Here, the parties are free to draw up their contracts. 

Employee loans are loans granted to the company by an employee himself. This is not a classic loan, as parts of the salary are usually withheld and made available to the company. Often the employees do not receive a fixed interest rate, so the interest rate depends on the profit or turnover of the company.   

If an employee receives participation rights in a company, there is no relationship under company law between the employee and the company. Only an entitlement to a particular share in the company's profits is agreed so that only a claim under the law of obligations exists. 

Companies with the legal form of a stock corporation (AG) can issue employee stock options to their employees. In practice, this option is often available to managers. They can then acquire shares in the company in the form of the stock options. The price of the shares must already have been fixed when the stock options are issued.  

Virtual shareholdings are another option for employee participation. Here, participation is fictitious under the law of obligations. Virtual shareholdings are more complex. For more information go to our separate article regarding virtual shareholdings. 

Employee share ownership companies represent an indirect form of participation. The investment company is not interested in the enterprise itself but directly in the original company. This form of participation is beneficial when structural changes in the company play a role, for example, when shares are to be reduced, or certain operating shares are to be separated from the company. It is also advantageous that there is a restriction of co-determination rights, and thus the administrative burden is considerably reduced. In practice, the formation is particularly suitable for the legal form of a limited liability company (GmbH) or a civil law partnership (GbR).