OLNS#14: Growth and Hurdle Shares in German Start ups – Structures / Practical Implementation / Empirical Data

German version  

In German start-ups, Growth Shares are particularly intriguing for motivating key employees and late co-founders. This is especially true when the company has already reached a substantive equity value, making further stakes in the company hardly affordable or burdened with hefty taxes.

While for "standard" shares, the latest amendments of sec.19a German Income Tax Act (Einkommensteuergesetz – "EStG") now allow to defer the wage tax on the non-cash benefit, a better tax treatment can often be achieved with Growth Shares.

OLNS#14:

• explains the concept behind Growth Shares in detail and presents potential applications;
• provides practical assistance on key aspects of implementing Growth Share programs;
• highlights how to avoid legal and tax pitfalls, while also pointing out where uncertainties remain; and
• presents the empirical results of an analysis of nearly 70 Growth Share programs that were implemented in German start-ups, answering questions such as in which phase of the company start-ups launch such programs, to whom Growth Shares are issued, and how extensive these programs are in relation to the entire cap table.

In preparing OLNS#14, our cross-functional Orrick team again drew on experience representing more than 4,500 venture-backed companies and 100+ unicorns as well as the most active funds, corporate venture investors and public tech companies worldwide. Founded in the Bay Area, Orrick is one of the world’s leading technology law firms and advises on more venture transactions in Europe than any other law firm for nine consecutive years (PitchBook, FY 2024).