Profit participation rights, right to information, public award & taxes

The legal construct of virtual shares (participation rights / Genussrechte) enables their holders to be economically equivalent to "real" shareholders — but without voting rights.

Holders of virtual shares have the right to participate in the economic success of a startup. This includes exit proceeds, liquidation proceeds and distributed dividends. Due to these characteristics, virtual shares are economically comparable to GmbH shares. In addition, holders receive a limited information right, which is typically fulfilled through annual financial statements.

Another key legal component is the put option. It gives investors the right to return their virtual shares to the company at specified intervals. The company decides in what form the return is settled. More on this in the chapter "Put Option".

Compared to traditional GmbH shares, there is no need for notarization, and virtual shares can be easily transferred between accounts. This significantly improves their tradability.

Legal Components of Virtual Shares

• Participation Right (Genussrecht): Right to economic participation in the company's success — exit proceeds, liquidation proceeds, dividends.
• Information Right: Entitlement to certain information, e.g. annual financial statements.
• Put Option: Right of investors to return virtual shares to the company at specified intervals — terms are determined by the company.
• Public Reward (Auslobung, § 657 BGB): A public declaration ensuring that all virtual shares carry the same rights and are legally transferable on the secondary market.

Public Reward (Auslobung)

The virtual shares and their associated rights are inseparably linked through the investment contracts and a so-called "public reward" (Auslobung). The Auslobung is a unilateral legal transaction anchored in § 657 BGB, in which a public declaration is made. The company publishes this declaration (e.g. on its website) and thereby guarantees that every virtual share carries the same rights. This means investors on the secondary market do not need to worry about the legal validity of previous transfers.

Legal & Tax Notice

• Commercial balance sheet: Virtual shares are classified as equity.
• Tax balance sheet: Virtual shares are classified as debt.
• No VAT applies.
• For investors, virtual shares are taxed comparably to GmbH shares.