Employee participation and corporate transaction

Employee share ownership is a model that was originally mainly used abroad or in large German companies. In the meantime, the idea of allowing employees to share in the company's success has also found favour in the SME sector.

There are various reasons for and against such a participation programme and various models. Employee share ownership can attract managers and executives in particular and bind them to the company in the long term. From a financing point of view, it offers advantages if employees strengthen the company's capital base through their own contributions or make borrowing partially or completely unnecessary.

In the event of a company acquisition, employee participation can be an interesting way to remain an attractive employer in the long term and strengthen employee loyalty. This applies to both start-ups and established companies.

It is important to note that the courts also apply established labour law principles to employee participation programmes1. It is therefore advisable to consult a legal advisor when designing such a programme.

There are various employee participation models that companies can use to allow their employees to participate in the company's success. Here are some of the most common models:

1. Employee shares: Employee shares are the best-known form of employee share ownership.
2. GmbH shares: Employees can become equal co-owners of a limited liability company (GmbH) by investing capital in it.
3. Employee loans.
4. Silent partnership.
5. Profit participation rights.
6. Virtual participation.
7. Bonus payments.
8. Phantom shares (also known as virtual shareholdings).
9. C-shares.
10. Stock options.
11. Issue of company shares (employee participation in the narrower sense).

It is important to note that the choice of the right employee participation model depends on four factors in particular: the legal form of the company, the desired scope of information and participation rights for employees, the capital share and investment risk as well as the interest and profit sharing of the capital.