If you’re a founder of a limited liability company (LLC) in Germany, you should really get to know the inner workings of your company such as its shares.
What should be considered when transferring shares and what are the differences between investments? And what taxes are incurred when buying or selling a share? We’re here to provide you with the most important information about ‘GmbH shares’.
Shares, partners and holding: Definition of terms
Persons who hold shares in a company are not only referred to as partners (Teilhaber) but also as shareholders (Gesellschafter) or stockholders (Anteilseigner). A natural or legal person may hold an equity interest as long as it exercises the rights and obligations of an investor in a business. The amount of the business share is determined according to § 14 GmbHG according to the respective transferred share capital contribution.
But, how is it decided what the rights and obligations of lenders should be? And what types of investments are there?
When a GmbH is founded, it’s already decided which shareholder holds which stake in the company. The statutes/Satzung (also known as the articles of association/Gesellschaftsvertrag) then record the percentage shares. The amount of the shares has a variety of legal consequences within the company, such as voting rights and profit-sharing.
Types of shares for GmbH shareholders
In general, a distinction is made between the following types of participation:
- For shares below 10%: This is a ‘scattered holding’ (Streusitzbeteiligung), also called ‘lowest-level holding’ (Kleinstbeteiligung). These shares are relevant only if unanimous decisions are required in votes.
- For shares below 50%: This is a minority holding (Minderheitsbeteiligung).
- For shares of 25 to 50%: This is a blocking minority (Sperrminorität). With a blocking minority, the shareholder can prevent resolutions of the shareholder’s meeting, which requires a qualified majority (> 75%). For example, investors prefer to get a 25% stake in a company. You do not have to be involved in the company, but they can block changes to statutes, mergers, or the like.
- For shares above 50%: Resolutions requiring a simple majority may be blocked or affected by the stockholder.
- With shares of 75 to 95%: This is a qualified majority holding. This shareholder can enforce many decisions with his or her share alone, which can only be stopped by a blocking minority.
- For shares of 95% to 100%: This is an incorporation holding (Eingliederungsbeteilung). This is especially necessary if a takeover of the company is to be done in order to override the co-owners.
The influence is exclusively dependent on share size if no separation of the capital unit and the voting right was specified in the articles of association.
The intercorporate holding (Schachtelbeteiligung) is a special form of participation. If a capital company (ie a parent corporation) holds a certain minimum share in another capital company (ie a subsidiary), there are special trade and tax advantages to avoid double taxation of profit distributions.
In this way, the intercorporate privilege (Schachtelprivileg) occurs with a minimum share of 10%. This means that dividend income is not subject to corporate income tax (Körperschaftssteuer). However, the recipient of the dividend or the transferor may not be a natural person.
The trade tax intercorporate privilege (das gewerbesteuerliche Schachtelprivileg), on the other hand, applies to every business enterprise that receives dividends from another corporation, however, a minimum holding of 15% at the beginning of the year is required, unless otherwise agreed in the double taxation agreement.
Silent and open business partners
Furthermore, in addition to the shareholding, a distinction must also be made between open and silent partnerships. As the name suggests, this term is about the knowledge of third parties in the partnership. An open partnership (offene Teilhabe) is a partnership, which is evident in the entry in the commercial register and from the annual accounts. Most founding members of a company have an open partnership. By contrast, a silent partnership (stille Beteiligung) is not recorded in the commercial register (Handelsregister) and is not published in the annual accounts (Jahresabschluss).
There are several benefits of a silent partnership for companies and business partners, but it can also have disadvantages for the company.
Direct and indirect partnership
Stockholders are distinguished not only by the percentage of ownership in the company and the knowledge of third parties involved, but also by the directness of the holding.
A direct holding (direkte Beteiligung) is the norm. Here an investor acquires company shares and becomes not only a co-owner, but also a shareholder of the GmbH. A direct partnership in a GmbH is always associated with a risk for the investor (see below). Normally, however, the invested capital is returned to the investor at the end of the participation period through an exit.
In the case of indirect partnership (indirekte Beteiligung), the investor does not buy the shares directly, but, for example, through a trustee (Treuhänder). The investor does not become a co-owner or a shareholder, but a trustor (Treugeber) of the company. Indirect partnership can also take the form of a sub-participation (Unterbeteiligung). The sub-participation is not unlike the silent partnership; however, the contracting party here is not the company itself, but a shareholder.