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What are the practical implications for start-ups and VC investors?

The German Bundestag recently passed the draft of the Future Financing Act (Zukunftsfinanzierungsgesetz). The approval of the German Bundesrat is expected soon. The law has been hailed by many as a milestone and a massive leap forward for the German start-up industry. And rightly so.

But what are the practical implications? Will virtual programmes continue to exist, albeit for a more limited number of use cases? Does the new law really allow for direct employee ownership? Which corporate, partnership or pooling structures do we recommend? What are the restrictions of the new law? And finally, what are the tax implications?

This is what we would like to discuss with you using four case studies of situations in which we are regularly asked for advice on employee participation:

Case Study 1: Employee participation for early-stage companies. Will virtual share programmes remain the gold standard for early-stage companies or will we move towards equity, directly or through employee partnerships or other pools?

Case Study 2: What does the new law mean for existing virtual programs? Can these be restructured into equity participations?

Case Study 3: Late co-founders and (international) key hires. These situations are usually characterized by a more customized and less one-size-fits-all approach. Does this situation require a different approach using the new law's toolkit? How does the new law compare to NLP or zero shares?

Case Study 4: Later stage employee participation programmes. This situation will often be a combination of the other three. So far, the risk of prohibitively high dry-income as well as the necessity of one-by-one alignment with local tax offices meant that equity-for-all was often just an idea that wasn’t put into practice. Will this change under the new law and what restrictions and limitations apply to such later stage equity programmes.

Have we missed something? Please drop us a line.

Please note that we will be using Zoom for our webinar. We can provide alternative access. The Zoom details will also provide an option to join by phone should that be required – just let us know.

We are looking forward to welcoming you at our webinar.

Your Hogan Lovells team

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