What are participations in companies?
Company investments are a form of investment in which someone or a company acquires a stake in a company. Through this participation, investors can share in the success and/or growth of the company – but also in the losses.
Company investments are a common form of financing for start-ups, companies and founders. They are a way of raising capital from private or institutional investors without having to take on outside capital.
By investing in the company, investors acquire certain rights and obligations:
- Voting rights: the right to have a say in important business resolutions or decisions within the company.
- Right to information: the right to be regularly informed about company processes.
- Profit participation right: the right to a share of profits generated by the company.
- Duty of loyalty: the duty to commit oneself to the company and remain loyal to it.
What types of participations are there?
Are you thinking about selling company shares? Then you should be informed about the different types of shareholdings.
Shares
Shares are probably the best-known form of company participation. Larger companies as well as some medium-sized companies are traded on stock exchanges. Exchange-traded companies raise capital by selling part of their equity in an IPO or capital increase. Investors can participate in these companies by acquiring their shares. Traditionally, such share purchases are made via the bank.
Shares in a GmbH (limited liability company)
In the case of a GmbH (limited liability company), shareholdings can be acquired in the form of shares. Investors and investors thus become shareholders in the company and receive a profit participation right, a say in the company’s affairs and an exit participation: If the GmbH shares are sold, the exit participation can mean a share in the proceeds of the sale. Shares in a GmbH are often acquired by professional investors such as private equity companies, business angels or venture capital companies in order to participate in the profits of growing companies.
Funds
Funds enable investors to participate indirectly in the company by acquiring fund shares without being co-owners. They therefore do not receive a say or a share in the profits. Instead, they benefit from distributions from the fund company. A distinction is made between:
- Open-ended funds: Investors can invest or withdraw their capital at any time.
- Closed-end funds: Shares can only be purchased during a subscription period and within a fixed term.
Mezzanine capital
Mezzanine capital describes a hybrid form of equity and debt capital. The investor provides the company with capital in the form of an equity loan. In return, the investor receives a profit and exit share. Here too, investors do not become co-owners.
Silent partnership
The silent partnership also counts as mixed capital. Here, investments are made in the company’s equity, but no entry is made in the commercial register. There is no co-determination right and the liability only extends to the amount of the contribution.
Company participation for employees (employee participation)
In addition to external investors, company participation is also possible for the company’s employees. This form is conceivable, for example, if employees are to be tied to the company but cannot be paid higher remuneration. Shareholders can receive a share of the company’s capital.
Advantages and disadvantages of investing in a company
The advantages of employee share ownership include the opportunity for an attractive return and participation in the company’s success. Also worth mentioning is the potential promotion of employee motivation in the context of employee participation. On the other hand, there is the risk of losses and the limited liquidity of non-listed investments.
Conclusion
Company participation offers investors the opportunity to make a targeted investment in a company or a specific project. In many cases, they become co-owners and benefit from various rights, such as profit sharing or the right to have a say. For companies, a company participation is regarded as equity that is available for an indefinite period. A detailed understanding of the different types of shareholdings is essential in order to make an informed decision.
Do you need advice on selling your company shareholding?
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