This post is part of a series in which we are sharing our experience of founding a company in Germany. We hope that it will help others working their way through the foundation process. This post is about some of the considerations when creating the foundation documents, you can read more about which documents are required in a previous post. Also, think about reading the first post in the series for more details.
Protection from unwanted shareholders
This was quite an important point for us. We wanted to avoid situations that would lead to unwanted shareholders. This meant thinking about a few things:
- Under what conditions can a shareholder sell his shares?
- What happens if he dies?
- What happens if he gets divorced?
There are simple solutions to these challenges. In the case that one shareholder wants to sell, for example, the other shareholders can be given a purchase right for those shares. In order to avoid an heir or divorcee becoming a shareholder, it can be stipulated that in the event of death or divorce the value of shares are paid out and the shares return to the company.
Long-term incentives through vesting of shares
Vesting is popular among startups. It is an interesting tool to provide an incentive for shareholders to remain active in the company long-term, by requiring them to return a proportion of their shares to the company if they leave early. We didn’t end up doing this to keep things simple, but I think such incentive structures are clever and effective.
Read the other posts in this series:
- Betting on the success of your business: why we decided to create a holding structure
- UG vs. GmbH: Selecting the business entity
- Choosing our advisors: do-it-yourself vs. finding someone qualified to help
- Planning for the best and the worst case: creating the foundation documents
- Making it official: notary, banks and the commercial register
- The cost of founding: a real-life example of founding a limited company in Germany
Disclaimer: We’re not lawyers or tax advisors, to stay on the safe side consult an expert before doing anything 😉